For months, financial regulators from around the world have wrestled over a further tightening of capital rules for banks, the so-called Basel III reforms. Now Felix Hufeld, the head of Germany’s financial regulator and an important critic of the proposals to date, has given a speech in which he signaled a willingness to compromise.
For the first time, he has publicly accepted stricter rules on how banks calculate their risks and are thereby permitted to determine their capital needs. This is despite the fact that German banks could be especially hard hit by such a change.
Specifically, the proposal revolves around the extent to which banks will be allowed to reduce their capital requirements in the future by calculating their credit risks themselves. U.S. regulators, in particular, had called for a so-called lower limit, which determines how far lenders are permitted to deviate from a standardized approach.