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UK Govt warns Europe against "unpicking" Basel III

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Treasury financial secretary Mark Hoban has warned European law makers against unpicking Basel III as they draw up their capital and liquidity reforms.

Speaking at the British Bankers’ Association international banking conference in London yesterday, Hoban said the Capital Requirements Directive 4, which will implement the Basel III reforms in the European Union, should not deviate from the new Basel rules.

He said: “We must resist attempts to unpick Basel III. It is incredibly disappointing to hear mutterings of discontent and resistance on the implementation of Basel. The right balance was struck on transition, on the balance of particular capital structures and on the overall level of capital. It was carefully calibrated and demonstrated we can learn the lessons of the crisis.”

The European Commission is expected to publish CRD 4 draft directive this month. According to Conservative MEP Vicky Ford, leaked pre-drafts provide for more discretion for member sates over what can be counted as quality capital and liquidity.

Also speaking at the conference, European Banking Authority chairman Andrea Enria said regulators should “stand as a single body” behind international agreements.

Hoban called for the capital requirements set at a European level to be a minimum not a maximum and for member states to be able to apply higher levels of regulation to ensure financial stability. He said: “Maximum harmonisation will limit the ability of member states to impose regulations to reflect the unique risks and characteristics of their home markets and severely undermine their ability to tackle macroeconomic issues unique to their markets.”

Enria said national regulators should be allowed “restrained discretion” in applying the standards but Hoban’s hopes of anything more than that will be stymied by Enria adding that Basel III will give “real content and operational life“ to the single rule book. The EBA will draft technical standards for the banking industry which the European Commission must then sign off. The EC says CRD 4 will “respect the level and ambition of Basel“.

Basel III requires banks to hold 7 per cent of core tier one capital, or up to 9.5 per cent for globally systemically important financial institutions. Hoban says this must be made up of ordinary shares and capital instruments, and not include insurance capital beyond that already allowed.

Enria appeared to agree with Hoban’s sentiment when he pointed out that the introduction of hybrid capital instruments led to a significant decline in the quality of capital in the European Union.

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