The Basel Committee, a global banking regulator comprised of 27 member states and the European Union, held a meeting in Stockholm, Sweden, last week. The main takeaway is that American and European regulators failed to reach a common ground to establishing new rules to mitigate risks in the financial sector.
The so-called Basel III round began in 2008 and it aims at preventing a new financial crisis that struck the global economy in 2007. The proposals, however, might pose new obstacles to access credit, especially for businesses and households. Why? Because the Basel Committee would like to increase capital requirements for banks in order to cover risks from fraud to lending. Also, new guidelines shall be established on the way financial institutions calculate the funds they need to shield themselves from such risks.
The main reason why the latest meeting failed is the different stances of American regulators and the EU. Washington would like to pass a 75 percent “output floor” while Europeans counterparts are pushing for 70 percent.
European regulators stressed that if the Committee imposes a higher output floor, such policy could harm the economy in the continent. According to estimates, if implemented, the measure will demand approximately 859 billion euros from European banks. The U.S. is more concerned about the internal models used by banks, that’s the reason why the country is promoting a more “simplistic” approach.
This chapter is far from over if we take into account that both parties have failed to reach a consensus in the last year.
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