Germany and France are fighting global rules that would force lenders like Deutsche Bank AG and BNP Paribas SA to reveal their reliance on debt, according to an internal note prepared by the European Commission.
Two of the euro zone’s largest economies are “fiercely against” proposals drawn up by the Basel Committee on Banking Supervision for lenders to reveal, as soon as 2015, whether they will meet a cap on borrowing, known as a leverage ratio, that may only become binding three years later. Austria and Greece are also opposed, according to the document obtained by Bloomberg News.
The “total transparency” may put pressure on lenders to meet the leverage rules three years earlier, the countries argue, according to the commission document. The nations may accept publication of methods regulators use to measure “leverage risk” that don’t identify specific banks, the document says.
The Basel rule is part of an overhaul of bank capital and liquidity standards designed to prevent a repeat of the financial crisis. Investment banks’ extensive use of borrowed funds was blamed by Federal Reserve Chairman Ben S Bernanke for contributing to the financial crisis.
Tier-I capital
The Basel ratio would force a lender to hold reserves of Tier-I capital equivalent to three per cent of its assets, limiting excessive levels of debt in the banking system, the Basel group said in December. Tier-I capital is a gauge of a banks’ financial strength and includes retained earnings, common equity and some other types of securities.
Bertrand Benoit, a spokesman for the German finance ministry, declined to immediately comment, as did the French finance ministry.
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The European Commission is responsible for proposing laws to apply the rules in the 27-nation EU. Michel Barnier, the EU’s financial services chief, has promised draft legislation “by the end of the summer.”
“Basel has made its views clear on this issue,” Chantal Hughes, a spokeswoman for Barnier, said in an e-mailed statement. “It’s now up to the commission to see how we put the Basel framework into European legislation. This is in discussion and no final decisions have been taken.”
While the Basel committee doesn’t expect banks to adhere to the leverage rule until 2018, lenders are supposed to disclose data on how close they are to meeting it, 2015 onwards. The Basel committee has said it may revise the leverage plan, depending on the outcome of an observation period until the end of 2016.
‘Clear danger’
“There is a clear danger that disclosure before the finalisation of rules could well undermine the ability to make any modification to the calculations necessary in the trial period,” Peter Beales, managing director at the Association for Financial Markets in Europe, said.
“Any disclosure, if required, should be made solely to the regulator,” Beales said. AFME represents international lenders, including investors Deutsche Bank, BNP Paribas and UBS AG.
Austrian Finance Ministry spokesman Harald Waiglein had no immediate comment. Greece’s finance ministry didn’t immediately respond to calls and e-mails.
A majority of EU countries and the European Central Bank “are in favor of this transparency,” the EU note says. Credit rating companies will, in any case, make their own leverage-ratio calculations for banks, it says.
Regulators would “closely monitor disclosure of the ratio” by lenders, the Basel committee said in December.
Sheila Bair, chairwoman of the US Federal Deposit Insurance Corp has advocated international application of a leverage ratio — something the US has had on its books since the 1980s.