UPDATE 2-EU supervisors urge implementation of global banking rules

(Adds ECB, EBA, European Commission comments)

FRANKFURT, Sept 7 (Reuters) – The European Central Bank and national central banks across the European Union on Tuesday called for the bloc to fully implement remaining international banking capital rules agreed to prevent a repeat of the global financial crisis.

The final part of rules known as Basel III is now due to be implemented by Brussels after a delay due to the coronavirus pandemic which hit the European economy.

In an open letter, nearly two dozen central bankers and regulators urged the Commission to stick to “the letter and the spirit” of the rules, which have been the object of intense lobbying from a banking industry keen to reduce its capital burden.

“We, as prudential supervisors and central banks in the EU, very much support a full, timely and consistent implementation of all aspects of this framework,” the signatories said.

“The pandemic shows that more resilient banks are better able to support the real economy, even during times of crisis.”

The open letter, addressed to Financial Services Commissioner Mairead McGuinness and her top official John Berrigan, was signed by the heads of institutions from all large EU countries with the exception of France.

In a separate letter to McGuinness, the European Central Bank and the European Banking Authority, the bloc’s banking watchdog, stressed the need for “timely and faithful” implementation of the capital rules.

“It is therefore crucial to avoid implementation approaches that would be inconsistent with international agreements and, in addition, would leave shortcomings in the existing framework relating to specific risks unaddressed,” the ECB and EBA letter said.

Both letters defended the “output floor”, which limits large banks’ discretion in setting their own capital requirement, while warning against a “deviation” to a more flexible “parallel stack approach” defended by the European Banking Federation, a trade body, which had no immediate comment.

A full implementation of the output floor would increase capital requirements by 18.5% for EU banks, leaving them with a 52.2 billion euros ($61.92 billion) capital shortfall, based on calculations by regulators at the EBA as of last December.

But the ECB and EBA said the overall increase in capital due to the new rules would not be significant, save for a few banks that have traditionally benefited the most from the current rules.

A spokesperson for McGuinness said a legislative proposal due soon will meet the EU’s international commitments to implement Basel, but with adjustments to reflect the European banking sector.

“The overarching objective will be to address remaining deficiencies in the banking prudential framework without incurring a significant increase in capital requirements overall,” the spokesperson added.

The central bankers also upheld a standardised approach to credit risk and said EU-specific deviations should be minimised.

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