PARIS (Reuters) - International bank regulators need to finalize tortuous negotiations on new bank capital requirements by this autumn, said European Central Bank Governing Council member Francois Villeroy de Galhau.
The Basel III agreement, written by the global Basel Committee, aims to tightens capital requirements after the 2007-09 financial crisis. The bulk of the rules are being implemented, but final elements are gridlocked by disagreement.
“I sincerely hope that we can reach a balanced agreement among Basel Committee members by next autumn,” Villeroy, who is also governor of the Bank of France, told a financial services conference in Paris on Wednesday.
Efforts to wrap up the talks have so far floundered over a proposed “floor” which would mean capital cannot fall below 75 percent of the “standard” approach set out by regulators and used by most lenders, while big banks use models to add up risks instead.
“Should the output floor be set at too high a level, the consequences in terms of the reduction of risk sensitivity and the increase in capital requirements would be unacceptable: for example, a 75 percent output floor would affect half of international banks,” Villeroy said.
He added that bank solvency had become less of a pressing issue for financial stability than liquidity of non-banks, various investment vehicles and funds hat have seen the levels of assets they hold surge since the financial crisis.
Villeroy said authorities should conduct “system-wide” liquidity stress tests to get a grip on potential risks of a “fund-run” when markets get tough.
Reporting by Leigh Thomas; Editing by Andrew Callus