European banks say they risk being put at a disadvantage to global competitors in the face of diverging regulation after the UK announced a delay in implementing international capital standards.
“Ensuring an international level playing field is critical,” the European Banking Federation said in an emailed response to questions on Friday. The Swiss Bankers Association said that country should take a fresh look at its rules if other jurisdictions make changes.
The European Union and Switzerland implemented most or all of the updated Basel III rules at the start of the year, even though the return of Donald Trump as US president cast doubt over whether Washington would follow suit. That has left the region’s banks worried about a potential erosion in their profits and their ability to offer pricing that competes with US and UK firms, especially in trading businesses.
On Friday, the Bank of England pushed the application of Basel 3.1 by one year to the start of 2027 citing “the current uncertainty around the timing” of the standards in the US.
The postponement in the UK “exacerbates the regulatory divide,” said Heiner Herkenhoff, chief executive officer of the Association of German Banks. “Politicians and regulators must react to this and ensure that European institutions are not disadvantaged,” he said.
Switzerland implemented the rules this month while the EU delayed just one part of the requirements by a year to avoid a competitive disadvantage for its banks. The bloc can push back those trading book standards by a further year, although it may scrap them altogether if the US does not implement.
The Swiss finance ministry said in a statement that it has “taken note” of the BOE’s decision and that does not change its view as it has made its decision regarding Basel III.
The SBA expressed “regret” that Switzerland’s approach was not in step with other jurisdictions. “If these should now make significant adjustments to the content, we believe that at least a partial reassessment would also be appropriate in Switzerland,” the group said.
Banks around the world have argued that higher capital requirements would limit their ability to extend credit to companies and households. The stricter standards would also dent their reserves for shareholder dividends and stock buy-backs.
The EBF cited Europe’s need for “robust and competitive” banks to help fund major economic and societal shifts and said “a regulatory mindset shift is needed” to put more emphasis on growth. – Bloomberg
