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New Bank Capital Rules to Ease European Fears

New Bank Capital Rules to Ease European FearsNew Bank Capital Rules to Ease European Fears

Global banking regulators have softened proposed new capital rules in a bid to ease European concerns that piling on requirements would cause banks to crimp their lending, three sources familiar with the discussions said on Tuesday.

The Basel Committee of banking supervisors from nearly 30 countries met in Chile last month to complete new bank capital rules used by lenders in the world’s major financial centers, Reuters reported.

Among the most contentious elements, Basel proposed a “floor” for capital, which sources said Basel members have now agreed to change. They have also reached a preliminary deal on setting higher leverage ratios for the world’s 30 top lenders.

Basel’s compromises, which could still change, will need endorsement from the committee’s oversight body, which is expected to meet on January 8.

The European Commission recently announced an extensive package of banking reform proposals. Of particular interest to bank creditors, proposed amendments to the Bank Recovery and Resolution Directive aim to amend the creditor hierarchy in European bank resolution and insolvency proceedings.

The commission is also proposing changes to the onerous requirement that banks procure third party agreements to the recognition of bail-in for contracts governed by the laws of a third country. The timing of these proposals is significant because in both areas national rulemakers in different EU member states are currently implementing, or planning to implement, differing requirements. This note discusses the commission’s proposals in the context of the bail-in tool with a particular focus on the implications for creditors.

 

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