On 26 June, an inter-institutional negotiation (trilogue) took place on the topic of European bank capital reforms, during which final agreement on the major topics was reached. This is one of the last political steps to formalise the European Union’s plan for implementing the Basel 3 global bank standards. Finance Watch, the European NGO founded in reaction to the last financial crisis, has been advocating for the timely and full implementation of the Basel 3 agreements, as well as adjusting bank capital rules to account for climate-related risk of fossil financing.
Disappointingly, due to fierce pressure from the financial industry, neither of these have made it into the political agreement. This leaves Finance Watch and many others – including EU bank supervisors – concerned about future financial stability in the European banking sector, as well as EU´s international credibility. By watering down the provisions of the Basel 3 standards the European Union puts at risk the effectiveness of the Basel process and global rule-making for the financial sector.
Some progress has been made towards recognising risks that are not yet fully captured by the current rules. This includes capital requirements for exposures to crypto assets and some steps to better address climate-related financial risk and risky fossil fuel exposures. However, the use of transitional periods picks holes in key parts of the Basel rules, putting financial stability at risk.
Thierry Philipponnat, Chief Economist at Finance Watch, said:
“The EU co-legislators have come to an agreement that materially deviates from the Basel framework. The use of transitional periods to implement Basel rules has lost all credibility, as these periods are systematically extended. A weaker stability framework for the EU that’s non-compliant with Basel puts EU banks at a significant competitive disadvantage. Markets will recognise the risks a weaker framework poses if regulators will not, as we have seen in the recent case of Credit Suisse.”
To arrange an interview with Thierry Philipponnat, Chief Economist at Finance Watch, please contact Alison Burns at firstname.lastname@example.org or call on +32 (0)471577233
About Finance Watch
Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.
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