Basel III

Germans Fall In Behind Bank Reforms

  • Why it matters

    Why it matters

    Standardized regulation of the international banking system is thought to be a prerequisite to preventing another financial crisis.

  • Facts

    Facts

    • The Basel Committee on Banking Supervision was set up to standardize and reform the international banking system.
    • Committee members have been deadlocked over key sticking points of how banks calculate their risks and determine their capital needs.
    • Felix Hufeld, head of the German financial regulator BaFin, has signaled he is prepared to compromise on stricter capital requirement rules.
  • Audio

    Audio

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Bankers in Germany's financial capital of Frankfurt are making conciliatory noises about Basel III. Source: DPA

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.

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