New banking supervisory rules adopted by the Basel Committee in September 2010 relating to higher minimum capital requirements for banks. The new rules will be phased in gradually from 2012 onwards on a precisely defined timetable until the beginning of 2019. – Whereas under Basel II only 2 percent had to be allocated to the hard components of shares and retained earnings, which are immediately liable in the event of losses, this figure will rise to 4.6 percent from 2015. From 2013, this requirement will increase to 3.5 percent, and one year later it will be 4 percent. From 2016, banks must then begin to build up a capital conversation buffer of 2.5 percent by 2019. This, too, may only consist of hard core capital. In addition, institutions will have to set up a further countercyclical buffer, which will be geared to national characteristics and represent a precaution in times of very strong credit growth. Silent partnership contributions, which are particularly important for German banks, are no longer recognized as core capital in the case of stock corporations. In the case of savings banks and cooperative banks, these capital components must meet certain requirements. – The supervisory authorities of individual countries can issue regulations that go beyond these standards; this was decided by the EU finance ministers in May 2012. From an institution’s perspective, this means that different regulations apply to one and the same transaction depending on the country. In the case of a loan to an internationally active company, it will therefore be more favorable to transfer the money to a subsidiary in country A, which is subject to lower requirements, rather than to the Group’s management in country B. The amount of the loan will then be calculated internally. Within the group, the amount is then transferred to the parent company. – It has been calculated that German banks will have to raise around EUR 50 billion in additional capital by 2018 as a result of Basel III. – Under Basel III, the capital requirement for banks ultimately rises to seven percent and for systemic banks up to ten percent, but these ratios relate to risk-weighted assets, not total assets. Some institutions boast of their ten percent core capital under Basel III; however, their equity accounts for less than three percent of total assets. Thus, a loss of three percent of assets is enough to make the bank insolvent. In the financial crisis that followed the subprime crisis, the average losses of large banks amounted to four percent of assets. This supports the demands of many banking supervisors (also known as “financial watchdogs”) to significantly increase the capital requirements for institutions. After all, the best way to regulate the financial market is to leave liability entirely with the banks. – See asset reduction, investment liability, banking supervision, European, capital ratio, trading disclosure, leverage ratio, capital buffer, countercyclical, minimum liquidity ratio, moral hazard, regulatory framework, uniform, regulatory pressure, structural liquidity ratio, loss absorbency, pre-effect, forced convertible bond. – Cf. Deutsche Bundesbank Monthly Report of September 2010, pp. 8 f. (overview of new regulations; timetable 2013 to 2019), pp. 69 ff. (disclosure requirements; p. 78: guidelines on disclosure requirements; p. 80: overview), BaFin Annual Report 2010, pp. p 54 ff. (detailed and clear presentation of the new standards), Financial Stability Report 2010, p. 112 f. (projection of the impact of Basel II on German banks by 2016), Deutsche Bundesbank Annual Report 2011, p. 95 (impact study; RWA initiative), BaFin Annual Report 2011, pp. 63 et seq. (implementation efforts; timetable), ECB Monthly Report of February 2012, p. 28 et seq. (scope of burdens for banks in the wake of Basel III), Financial Stability Report 2012, p. 90 et seq. (countercyclical capital buffer for loans), ECB Monthly Report of April 2013, pp. 83 ff. (the Basel-II liquidity rules in the context of monetary policy; many important explanations; overviews), Deutsche Bundesbank Monthly Report of June 2013, p. 57 ff. (implementation problems; very many details spelled out).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/