New Banking Rules Hurt European Lenders

Controversial new rules designed to strengthen the banking sector risk is damaging lenders’ ability to support the economy, the head of the Netherlands’ largest bank by assets said.

The comments underline tensions between Europe and global regulators only weeks before the new rules are due to be completed, Nasdaq reported.

Ralph Hamers, chief executive of Dutch bank ING, told a Frankfurt journalists’ club that in some areas, new rules—which critics refer to as “Basel IV”— would require capital increases. “The normal reaction of banks is to shrink your balance sheet,” he added.

Banks can’t help support the economy “if we don’t grow as banks,” he said. This scenario isn’t “supportive of what Draghi’s trying to do and what Juncker’s trying to do,” he said, referring to European Central Bank President Mario Draghi and European Commission President Jean-Claude Juncker.

Draghi’s institution has for years tried to prod banks to boost their lending to the real economy via ultra-cheap loans to banks and purchases of assets off banks’ balance sheets, in the hope that lenders would pass the new funds to the real economy.  Juncker has promoted a €315 billion ($346.42 billion) investment plan to support growth on the continent.

The continent’s banks argue that the proposed new rules would hurt European lenders in competition against American rivals. The rules are designed to limit banks’ ability to calculate the riskiness of mortgage assets the banks hold.

Unlike their American counterparts, European banks generally hold mortgage loans on their balance sheets. As a result, they have to offset more capital against those loans. Despite the objections, the committee, based in Basel, Switzerland, wants the rules finalized by the end of the year.