The UK will be able to implement the Independent Commission on Banking’s recommended capital requirements after a compromise was reached on the European directive which implements Basel III’s capital rules.
The ICB’s final report, published in April 2011, says banks’ retail arms should be ringfenced and made to hold 10 per cent of equity to risk- weighted assets.
The global agreement on bank capital rules, Basel III, which was published in December 2010, said banks should hold at least 7 per cent of equity to risk-weighted assets, with a total minimum capital requirement of 10.5 per cent against RWAs. It left room for regulators to apply higher standards if they want.
The capital requirements directive IV implements Basel III within the EU.
The European Commission’s original proposals for CRD IV, published in July, applies the same levels as Basel III but does not allow member states to go any further.
Last week, the European Council agreed to a compromise put forward by its Danish presidency that allows member states to add a buffer of up to 3 per cent of a bank’s global assets and 5 per cent of its national assets.
The commission must be informed before this “systemic risk buffer” is applied but it will not have a veto over the move.
The European parliament says regulators should be able to raise this buffer to 10 per cent if necessary.
Speaking at the meeting of European finance ministers last week, Chancellor George Osborne said the amendments “will allow us to implement the ICB report.”
Earlier this month, Osborne refused to back the commission’s plan to harmonise the requirements across Europe, saying it was not in line with Basel III.
BDO partner Charles Ilako says: “It is not a bad outcome for the UK. Osborne was never in a position to block the whole process and it would have looked bad if Europe could not come to a common position.”
Cicero Consulting account director Michele Bellabarba says: “The UK has got what it wanted. Some UK banks could be disadvantaged by higher capital levels but people will see them as safer institutions.”
The institutions are expected to thrash out final rules by the summer.