Efforts to push back, delay and dilute the final requirements of the Basel III capital rules for banks in Europe represent a negative for banks around the world, says Moody’s Investors Service.
Earlier this week, European policy-makers agreed to a legislative proposal that implements the final Basel III reforms, including measures to reduce banks’ reliance on internal models and revising certain risk weights.
However, in a new report, the rating agency said the proposal will “water down and delay” for up to 10 years compliance with certain provisions that would increase banks’ capital requirements.
“The proposal would reduce [European] banks’ required loss-absorbing capital and increase the risk that international capital standards will be applied in a fragmented manner, a credit negative for banks globally,” Moody’s said.
Among other things, the European proposal delays implementation of parts of the Basel III reforms that were due at the start of this year until 2027, and the phase-in of increased risk weights won’t start until 2030 and won’t be fully adopted until 2032, the report noted.
If other countries follow Europe’s lead, “banking regulation would return to the more fragmented regional approaches that make risk assessment on a comparable basis more difficult, a negative for bank creditors,” Moody’s said.