Position on Basel III
Here you will find a short and concise summary of vdp’s current position on the topic of Basel III. The Basel guidelines are one of the most important topics underlying vdp’s work. Further vdp positions will follow.
What challenges does the Basel III reform pose for German banks?
- Firstly, it’s important to emphasise that Pfandbrief banks are not calling the reform into question – quite the opposite, in fact. We are in favour of having a uniform supervisory approach worldwide and support the reform of Basel III in Europe.
- That said, the maximum implementation approach proposed by the EBA would have a massive impact on bank capital and lead to a noticeable shortage of loans for the real economy, make such loans more expensive and promote disincentives.
- This gold-plating of the Basel III requirements would have a significant adverse effect on the low-risk business of mortgage lenders in particular.
- To clarify, full implementation of the Basel III reform, the approach preferred by the EBA, would result in a sharp rise in the minimum capital requirement – a rise of 35% for German mortgage banks.
- This increase in capital requirements would be due predominantly to the output floor, which would have a particularly adverse effect. The output floor would result in a massive increase in capital requirements for banks using internal risk weighting models – such as almost all mortgage lenders, for example.
Which approach does vdp support and what would it like to achieve?
- vdp has proposed an alternative calculation method that is Basel compliant. The so-called parallel stacks approach could significantly reduce the burden caused by the output floor.
- The capital requirements would continue to take into account the security interest, but in a way that is considerably more tolerable and risk-sensitive for banks.
- This approach has already garnered support from large sections of the banking industry and a number of EU member states.
- vdp is appealing to decision-makers in Brussels not to be over-zealous with the Basel III reform, especially not at a time when the focus is on recovering from the COVID-19 pandemic and implementing the Green Deal – tasks that are heavily reliant on support from banks.