Basel III unaffected by Europe's woes

2012-05-30 10:13

Hong Kong - The timeline for implementation of tougher banking rules designed to prevent another global financial crisis will not change due to turmoil in the eurozone, a senior regulator said Wednesday.

The so-called Basel III rules mandating banks increase their capital-to-assets ratios will be rolled out as planned from next year to 2019, Financial Stability Board (FSB) chief Mark Carney said in Hong Kong.

"I wouldn't characterise that timeline as being aggressive. It's a consensus-driven timeline. It's not going to change," the Bank of Canada governor told reporters after a board meeting.

Many US banks are still to implemented the Basel II regulations, which were published in 2004 and have been adopted by their European counterparts.

There is also criticism that the capital adequacy rules agreed by G20 countries are too tough at a time when the world is facing a new credit crunch stemming from crisis-hit Europe.

But Carney said the board responsible for advising the G20 on how to prevent systemic banking failures saw no reason to change the Basel III requirements.

"What's absolutely essential ... is that banks are adequately capitalised," he said.

"Making that a reality will contribute to financial stability and therefore contribute to growth in any part of the world, including Europe."

Adopted in September 2010, Basel III requires banks to raise their high-quality core capital to 7.0% of total assets from the current 2.0%.

Big US banks criticise the new rules as overly tough, with JPMorgan Chase chief executive Jamie Dimon suggesting the US should reject the Basel accords.

JPMorgan Chase was one of 29 global banks, nine of them from the United States, designated by the FSB as systemically important financial institutions (SIFI) and so required to hold a higher level of capital under Basel III.

The SIFI banks - judged as those that could damage the global financial system if they failed - will have to set aside an extra 1.0% - 2.5% of assets for Tier 1 capital, on top of the Basel III standard.

Carney said "tensions" in global financial markets have increased recently and "risk aversion has returned to elevated levels" as a result of Europe's debt burden.

"Against this background, risks of adverse spillovers to global financial markets and economies have increased," he said, adding there has been a pull-back in cross-border financial activity.

But he added that at this stage there was no sign of a major spillover effect from Europe's debt crisis in other financial markets around the world.

Fear of a Greek euro exit has intensified since an inconclusive May 6 election that punished political parties applying an unpopular European Union-International Monetary Fund recovery plan.

European leaders have threatened Athens with a loan freeze if it fails to complete structural reforms pledged in return for the multi-billion rescue package.

Carney refused to say whether the FSB had discussed the possibility of a Greek exit.