IMF criticises EU proposals for Basel III implementation

Wednesday, 3 August 2011 01:23 - - {{hitsCtrl.values.hits}}

LONDON (Reuters) - The European Commission’s proposals to implement new global banking rules are disappointing in key areas, the International Monetary Fund said, calling for changes as the legislation is finalised.

In a supplement to its country report about Britain, the IMF said the commission’s proposals were falling short of IMF staff recommendations and therefore a disappointment.

“It will be important to strengthen the legislation as it is finalized, including by creating stronger common standards and ensuring sufficient flexibility for macroprudential policies,” the IMF said.

The IMF said that common standards were too weak as the commission suggested a maximum harmonisation for the EU on the minimum level of the so called Basel III requirements.

“Moreover, the Commission has softened the definition of core tier 1 capital relative to the Basel III recommendations in some areas,” the IMF said. The IMF’s criticism chimes with concerns in Britain that the EU rules would prevent the country from setting tighter regulation if needed.

Britain is among the EU countries that have called for a free hand to require banks locally to hold capital above the levels fixed in the new EU law. Many of the UK banks, for example, hold capital of around 10 percent. EU states and the European Parliament have the final say on the draft measures, and some changes are likely.

The IMF also said the EU proposal needed more flexibility to allow national regulators to use tools of their choice to limit the risks from the banking sector.

“Furthermore, the Commission proposal lacks a firm commitment to implement the leverage ratio or net stable funding ratio in 2018, as was agreed under Basel III,” the IMF staff said.