German banks voice Basel regulation fears | Business| Economy and finance news from a German perspective | DW | 07.09.2010
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German banks voice Basel regulation fears

The Switzerland-based Basel III committee is meeting on Tuesday to further discuss stricter banking regulations designed to prevent a repeat of the global financial crisis.

Euro bills

Basel rules stress that banks need money to lend money

The proposals for tougher rules on capital and liquidity requirements for banks have received a lukewarm welcome in Germany, where financial industry leaders say they would make it difficult for banking institutions to operate.

In a statement released ahead of Tuesday's meeting, the Federal Association of German Banks (BdB) warned that an endorsement of the global regulations on the table could force German banks to reduce their lending activity in order to increase their capital base.

The body said it would be "counter-productive" to insist on a strict ratio linking Germany's savings and cooperative banks' capital levels to their lending abilities, because they rely on deposits but have no real equity.

The Basel committee defines core capital as only equity and retained earnings, but does not take into account the other capital contributions these banks use to finance many of the nation's small and medium-sized businesses.

"Going too far would threaten the economic recovery and positive developments on the labor market," the statement said.

The BdB further warned that the Basel III overhaul of the sector could see the country's top 10 banks having to raise as much as 104 billion euros ($135 billion) of fresh capital.

Hesitant Germany

Frankfurt skyline

Bank managers in Frankfurt are keeping a close eye on Basel

Back in July, when the committee published the proposals in their draft form, Germany was the only one of 27 countries to hold out on approval, saying it would not endorse the document until it the ratio requirements had been decided.

Tuesday's meeting is due to fix those ratios. The expectation is that the minimum tier one capital ratio will be upped from 4 percent to 6-8 percent, while the core tier one ratio will increase from 4 percent to 4 percent.

Basel II, the predecessor to the current committee, was never implemented in either the US or Europe, and the BdB says there is a risk that Basel III will go the same way, allowing US banks to gain a competitive edge.

The planned reforms will be released for final approval ahead of a G20 meeting in Seoul in November.

Author: Tamsin Walker (Reuters/AFP)
Editor: Sam Edmonds

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