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Monday, December 09, 2019

European Banks Biggest Losers at Basel Regulation Talks

Many of the world’s largest and most powerful banks failed in efforts to push back against stricter capital maintenance requirements at a meeting of regulators in Basel, Switzerland this weekend:

Regulators meeting in Basel this weekend agreed to make as many as 30 of the world’s largest, or systemically important, banks hold as much as 2.5 percentage points more capital than the 7 percent core Tier 1 capital required. They also blocked European banks’ requests to use hybrid capital, such as contingent convertible bonds, to meet the target. The biggest banks will use mostly retained earnings and ordinary shares.

Lenders had lobbied against the extra capital requirements, saying they risked stunting the global economic recovery and some had sought to avoid being categorized as systemically important. The decision marks a loss for European banks that are grappling with the region’s debt crisis and had sought to use hybrid capital to meet regulators’ extra requirements.

Banks here and abroad have argued against any form of increased regulation or capital requirements since the financial crisis, because it would compel them, they claim, to stop lending and slow the recovery. Apparently this was a “win” for U.S. banks because they hadn’t been seeking the hybrid capital exception as Europeans had; nonetheless, one can be sure they will howl as much as anyone else when forced to take public interest into account, whether by disclosing investments, subjecting some trading to regulatory authority, or adhering to these tougher capital requirements, which are meant to prevent collapse.

More remarkable than these changes, though, is that banks in the United States have basically seen their size and political clout unfazed by their epic failure in 2008. It speaks to their lobbying prowess–and the unending influence of money in politics–that the Jamie Dimons of the world feel comfortable decrying common-sense regulations like these. Apparently, their fear of populist anger, which reached immense heights in late 2008 and early 2009, has waned, and things are returning to normal for the power players of international finance.


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