Why Basel’s new capital proposals are bad for banks

Author: Olly Jackson | Published: 15 Jan 2019

Europe risks repeating the collapse of Banca Carige and undermining ECB policy with changes to bank capital rules, according to industry sources in discussion with IFLR.

According to Sanja Tomicic, executive director of international relations at the Croatian National Bank, to avoid a another Banca Carige, "supervisors must ensure that banks have strong capital positions – preferably comfortably above regulatory requirements".

However, changes recently proposed by the Basel Commission mean that banks could use lower-quality capital to meet pillar two requirements. The ECB fears that this could encourage banks and markets to manipulate ratios using additional tier one capital, and make financial markets less resilient.

A spokesperson for a European regulator told IFLR that if the proposed changes came into force, "banks will not be as safe as they currently are".

According to sources, the proposal is akin to the deregulation seen pre-2008, and threatens the successful work done after the financial crisis...