Position on Basel III
You will find here a short and concise summary of the vdp’s current position on Basel III. The Basel guidelines are one of the issues that are central to the Association’s work. Further positions held by the vdp will follow.
What challenges does the reform of Basel III pose to German banks?
- It is important to emphasise at the outset that the Pfandbrief banks are not opposed to the reform. On the contrary: we are in favour of the globally uniform supervisory approach and support the reform of Basel III in Europe.
- But the European Commission’s legislative proposal on implementing the Basel III regulations would result in a gold-plating of the Basel requirements and impose a heavy burden on banks’ capital. The consequence of this would be to markedly reduce the credit supply and increase the cost of credit for the real economy as well as to encourage disincentives.
What is the vdp’s take on the European Commission’s legislative proposal?
- We welcome the planned deferral of the implementation date to the beginning of 2025. This is two years later than the Basel Committee proposed. The same applies to the transitional periods for the output floor.
- We take an even more positive view of the fact that the European Commission evidently now sees the need to treat residential property loans differently after all, such treatment having previously been denied for years.
- However, the conclusions reached on the basis of this realisation are still completely inadequate with regard to the legislative draft itself.
What specific points does the vdp criticise in the legislative proposal?
- We fail to understand why the special treatment to be given to residential properties should only apply temporarily, given that the residential property financing business is continuously low-risk, not just for a limited period of time.
- Nor do we understand why the legislative draft disregards commercial properties. After all, the financing of commercial properties is also safe. This is proven by the hard test already required today under the CRR and monitored in Germany by the Federal Financial Supervisory Authority (BaFin).
- In short, we cannot comprehend why the European Commission should over-fulfil the Basel Committee’s requirements for the output floor. Such gold-plating will lead to a substantial increase in capital requirements for banks which, incidentally, will be considerably higher than the European Commission envisages. This is because it is fundamentally wrong to only compare the minimum capital requirements with the capital that is actually available, given that banking supervisors expect capital ratios to exceed the minimum capital requirements at all times.
- In addition, the capital requirements will lead to a marked increase in financing costs for borrowers. Moreover, they will prevent risk-sensitive capital backing. Absurd as it may sound, the regulators’ aim seems to be that higher risk exposure should no longer automatically lead to higher capital requirements. Instead, a particularly sharp increase in capital requirements is to apply to low-risk business areas such as property financing. This will create completely wrong incentives to switch to higher-risk business and to move into less stringently regulated areas – to the detriment of financial stability.
- The vdp appeals to the decision-makers in Brussels not to overshoot the mark in the reform of Basel III – particularly at a time when recovery from the Covid-19 pandemic and compliance with the goals of the Green Deal are of key importance – tasks in which banks play a crucial supporting role.