Banks in the European Union could evade part of the tighter Basel III capital requirements under draft legislation implementing the new globally agreed standards across the 27-member bloc.
The 500-plus page draft, which has not been officially released, could allow EU banks to count more of the capital in their insurance subsidiaries than the global rules call for. It will also allow some banks to continue issuing hybrid capital – preference shares and other debt-like instruments – for longer than expected. The biggest French financial companies, including Société Générale and BNP Paribas, and the UK’s Lloyds Banking Group have insurance arms. They would benefit disproportionately from the exception.
The Basel Committee on Banking Supervision agreed last year to tighten the definition of capital and require all banks to maintain core tier one capital equal to seven per cent of their assets, adjusted for risk. But it is up to national regulators and the European Commission to implement the rules.