
EU’s Basel III delay invites all to play for time
The message not to dilute reforms got lost on the way from Frankfurt to Brussels
For months, European Central Bank regulators have been warning European Union lawmakers against deviating from the internationally agreed 2023 kick-off date for Basel III reforms.
In May, Andrea Enria, chair of the ECB’s supervisory board, said he and colleagues did not see “any benefits in further delays” than the one-year pushback already granted in the aftermath of the Covid-19 outbreak. In September, fellow board member Elizabeth McCaul warned the reforms’ “effectiveness relies on the commitment of all signatories to faithful and timely implementation in their jurisdictions”.
Despite the admonishments, the European Commission (EC) has now said it will delay their implementation by two more years. Under draft proposals unveiled on October 27, phase-in of the package won’t begin until 2025 – surely much to Berlaymont lobbyists’ delight.
The decision to derogate from international accords’ timelines flies not only in the face of Enria and McCaul’s words, but also of European agencies’ own technical analyses. Both the ECB and the European Banking Authority have criticised pushes to dilute the reforms, whether through delayed implementation or skewed localisation of rules. And though the EC backed down from a ‘parallel stack’ approach to capital charge outputs widely criticised as non-compliant with Basel, it’s still opting for transitional arrangements the wisdom of which Enria has questioned.
The bloc’s executive arm can put its foot down with banks when it wants to
Ironically, the EC already mandated the adoption of one of Basel III’s more consequential elements, the revised standardised approach to counterparty credit risk, in June this year, well ahead of the overall package’s implementation roadmap. The bloc’s executive arm can put its foot down with banks when it wants to.
Its play for time for the remainder of the reforms could now herald postponements by other countries. Already, the Bank of England has quietly indicated its own adoption of Basel III will slip beyond March 2023. And there are banks in many jurisdictions that would surely appreciate some extra time to catch up with reforms.
But the implications of the EC’s decision may go well beyond the world of capital regulation. It hardly bodes well for a world where the multilateral will to tackle global challenges is in high demand but short supply.
The EU’s Basel III precedent provides a tu quoque argument to governments demanding relaxed timetables to meet international commitments. They could cite ‘domestic specificities’ when asked to do their part over emission-reduction targets, or cross-border anti-money laundering, or the global fight against tax evasion.
The EC’s draft proposal must now pass muster with the European Parliament. That gives lawmakers a chance to reconsider its significance, and its consequences – especially unintended ones.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Our take
Why EU banks have snubbed revised green finance metric
Banks steer clear of Banking Book Taxonomy Alignment Ratio in droves
Banks seek to advance predictive pricing models
AI and machine learning-based tools could give FX desks the power to forecast currency movements
Getting a handle on model parameters
Mean reversion in rate parameters opens the door to dimensionality reduction
The case for believing in a Bessent put
Money market funds could prove critical in efforts to control 10-year yields
FRTB may bite harder for Europe’s CVA modellers
Farther reach of advanced approach and lighter load on total requirements mean limited takeaways from Canada and Japan’s implementation
Japan, Basel III and the pitfalls of being on time
Capital floor phase-in delay may be least-worst option for JFSA as US and Europe waver
FX traders revel in March Madness
Chaotic Trump policies finally bring diversity to flows – to the delight of market-makers
Market knee-jerks keep VAR models on their toes
With a return to volatility, increased backtesting exceptions show banks’ algos are stretched