World Economy

Germany Threatens to Abandon Basel Talks

Bundesbank says it is not prepared to reach an agreement at any price.Bundesbank says it is not prepared to reach an agreement at any price.

Germany’s Bundesbank delivered an ultimatum to other major banking powers including the US that it will walk away from talks on revamping global capital rules unless its key demands are met.

Andreas Dombret, a member of the Bundesbank Executive Board, said on Tuesday that Germany won’t accept a deal “at any price”. He laid out a series of demands, including two “essential areas of action” for talks later this month in the Basel Committee on Banking Supervision, the international standard-setter. Both will probably be met with skepticism in Washington, Bloomberg reported.

With the administration of President-elect Donald Trump soon to take power in the US, propelled into office in part by increasing suspicion of globalization and regulation, Dombret said he hopes work in the Basel Committee “will continue to be based on mutual trust.” But the Bundesbank “is not prepared to reach an agreement at any price”, he said in a speech in Frankfurt.

Basel Committee members, which include the US Federal Reserve and Japan’s Financial Services Agency as well as the Bundesbank, are racing to meet a year-end deadline to put the final touches on the international capital standards known as Basel III. Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corp., another committee member, said the US shouldn’t budge from stronger standards under European pressure.

 No to Compromise

“Any country can walk away from stronger standards,” Hoenig said in an e-mail. “But having experienced the financial crisis, it’s unclear to me what this lowering of standards would achieve for financial stability and long-term economic growth. The US should not compromise the strength of our system.”

While a number of European Union regulators and politicians have made clear that sweeping changes must be made to the Basel Committee’s proposals before they’ll sign on to an agreement, Dombret’s statement that Germany is prepared to walk away from the table was particularly emphatic.

EU opposition to parts of the Basel Committee’s proposals has already turned the talks into a hard slog. European politicians and policy makers insist not only that the new rules don’t significantly increase overall capital requirements, but also that the bloc’s banks aren’t unduly punished.

The Basel Committee convenes Nov. 28-29 in Santiago, Chile, to continue the negotiations. Felix Hufeld, president of German supervisor BaFin, said last week that he couldn’t rule out a situation in which “no compromise is better than a bad compromise.”


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