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France opposes big increase in banks' capital requirement -govt source
October 10, 2016 / 12:47 PM / a year ago

France opposes big increase in banks' capital requirement -govt source

PARIS, Oct 10 (Reuters) - France opposes a big hike in European banks’ capital requirement under new global bank rules being hammered out, and says the increase should be no more than 5 percent, a Finance Ministry source said on Monday.

The Basel Committee of bank supervisors from nearly 30 countries aims to finalise the rules by the end of this year to avoid repeats of the 2008-2009 financial crisis when taxpayers had to bail out undercapitalised lenders.

France and Germany, worried that proposals presented so far could discourage their banks from lending to consumers and companies, have stressed that the new rules must not significantly raise the capital that banks hold against their risks.

“An order of magnitude that does not seem unreasonable is more or less 5 percent,” the finance ministry source said, adding that Germany was of the same mind. “Anything above that is getting unreasonable.”

The rules complete the so-called Basel III bank capital reform initiated by world leaders during the financial crisis.

Basel has said it won’t lead to a significant increase in capital, without defining what this means in practice.

Banks have dubbed the changes “Basel IV” as if they were a new set of regulations, saying it will lead to capital hikes of 10 percent or more.

The French finance ministry source said the bank capital rules must reflect the fact that in Europe banks provide a much higher proportion of financing to firms and home buyers than in the United States, where financial markets have a much bigger role.

The French and German banking federations said in July that draft proposals could raise capital requirements by as much as 50 percent in some cases.

EU finance ministers had floated a hard limit of a 5 percent increase in July, but ended up dropping it from formal conclusions of their meeting.

They are to discuss the proposals again on Tuesday at a meeting in Luxembourg, but are not due to make a formal statement on the issue.

Last week, a top EU official signalled the bloc could refuse to apply Basel’s changes if they lead to big hikes in capital.

Basel Committee secretary general, William Coen, responded to criticism on Friday, saying the aim was not to punish banks with increased capital requirements, though genuine “outlier” banks could face a significant increase. (Additional reporting by Huw Jones and Francesco Guarascio; Editing by Susan Fenton)

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