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Banks Win Extra Year For Basel Capital Rule Because of Virus (2)

March 27, 2020, 6:20 PM

Global banking regulators delayed billions of dollars in new capital requirements by a year to January 2023 to let the industry respond to the coronavirus pandemic.

The decision applies to tough restrictions issued by the Basel Committee on Banking Supervision on how banks assess the risks of everything from mortgages to equities and complex derivatives handled by trading desks on Wall Street and around the world.

“It is important that banks and supervisors are able to commit their full resources to respond to the impact of Covid-19,” François Villeroy de Galhau, chairman of the Basel Committee’s oversight body, said in a statement. “This includes providing critical services to the real economy and ensuring that the banking system remains financially and operationally resilient.”

In Europe, regulators had planned to start putting the rules on the books in the coming months -- under protest from banks, which have campaigned to soften the regulations when they’re turned into European Union law. According to the latest estimate by the European Banking Authority, banks would need about 125 billion euros ($138 billion) to comply with the standards as agreed by the Basel Committee in 2017.

Read More: Europe’s Weakened Banks Called to Front Lines

The full force of the regulations is now set to be phased in between January 2023 and January 2028. The new set of capital rules for trading desks -- known as the Fundamental Review of the Trading Book -- will also start in January 2023.

The delay to the Basel rules adds to the unprecedented steps authorities have taken to help banks weather the fallout of the global pandemic. The European Central Bank freed up 120 billion euros of capital by letting banks dip into their financial cushions, enabling them to better absorb losses and support lending.

The Association of German Banks, which represents lenders including Deutsche Bank AG and Commerzbank AG, said the postponement of Basel III is “correct and helpful” in the current situation. “Our main task at the moment must be to supply the economy with liquidity,” Chief Executive Christian Ossig said in a statement.

Read More: Why Banks’ Trading Books Are New Target of Rules

The extra time for meeting tougher rules on home and corporate loans will be especially helpful for European banks, whose reliance on internal risk models is set to be curbed. The postponement on market-risk rules will benefit all banks with large trading books.

(Updates with comment in seventh paragraph.)

To contact the reporters on this story:
Silla Brush in London at sbrush@bloomberg.net;
Alexander Weber in Brussels at aweber45@bloomberg.net

To contact the editors responsible for this story:
Ambereen Choudhury at achoudhury@bloomberg.net

Marion Dakers, Keith Campbell

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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