Re-Define Press Release on the Capital Requirements Regulation
July 20 , 2011 13:30 in Brussels
Note (not for quotation): We are pleased that the Commissioner (at the press conference today)
used the metaphor of Finance as a Traffic System that we employ to make our book 'The Financial
Crisis – Causes & Cures' accessible to Policy Makers. We encourage you to read it, if you have not
done so already.
"The Euro 460 billion of additional capital estimated under this is needed today not in 2019."
Comments from Sony Kapoor (when quoting, please refer to him as Managing Director, Re-Define):
On the fragility of the EU banking system
"The weakness of the EU banking system has played a central role in the failure of EU policy makers to
reach a quick and decisive solution to the Euro crisis."
"The continuing fragility of the EU banking system has highlighted the urgency of increasing bank
capital and reducing maturity mis-matches. By failing to accelerate the timetable for either, the
European Commission has missed a big opportunity."
"No big surprises today"
"It’s a shame that the EU has chosen not to go beyond Basel III."
"While the proposal is fairly faithful to the Basel III agreement the whole Basel regime remains deeply
"This may have unintended consequences in terms of reducing the diversity of the European banking
"The proposal disappoints in its failure to specify liquidity ratios and leverage limits both of which are
as important for financial stability as additional capital requirements."
On the change from Directive to Regulation
"This switch means the EBA will emerge much stronger as the arbiter of Europe wide bank rules. That
may be no bad thing."
"In general the idea of a single rule book is a good one."
"The switch from a directive to regulation is mostly positive but should not have limited national
authorities topping up capital requirements in order to protect their tax payers."
"Taxpayers face very different risks from their banks in different countries. Not allowing them to
protect themselves against bank failure through additional capital requirements where risks are
greater is deeply problematic."
On the introduction of sanctions
"The provision of fairly stringent sanctions in the package should have some real deterrence"
"Before this, the sanctions regime in some EU countries was a joke."
On reducing reliance on credit ratings
"In principle we support the idea of reducing regulatory reliance on credit ratings."
"Moving to an internal assessment of credit risk is a good idea but may have unintended
consequences as banks seek to water down the risk weights they attach to their holdings in order to
reduce capital requirements."
"It could also impose an excessive burden on smaller institutions which may not have the capacity to
track complicated credit risk."
On national discretion for prudential norms
"The upward flexibility on the use of some important prudential standards by national supervisors
should prove useful but is also likely to be contentious."
"The national use of different capital requirements for real estate risk and counter-cyclical buffers and
other tools will allow the Euro area to function better within the constraints imposed by the single
On how markets are likely to put pressure on banks to recapitalize faster
"In all likelihood, the markets will require banks to increase their capital to the new levels much
before the regulatory deadline of 2019."
"The disclosure from the stress tests would help accelerate the market pressure on banks to increase
their capital faster than what regulators demand."
Michelle Henery, Michelle.Henery@re-define.org | +32(0)497631292 Press Officer | Re-Define - an
International Think Tank | www.re-define.org