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May 31, 2022

Basel Committee Shamefully Lowers Capital Requirements for European Banks Without Public Input

WASHINGTON, D.C.—Phillip Basil, Director of Banking Policy, issued the following statement on the announcement by the Basel Committee on a modification that will reduce the capital buffer for systemically important European banks.

“Today the Basel Committee – an organization that exists to set global minimum standards for banks – announced a lowering of capital standards for Europe’s largest and riskiest banks and did so without any justification or input from the public. This type of shameful back-room dealmaking for the benefit of some of the world’s largest banks not only undermines the public’s trust but also goes against the Committee’s own principles of seeking public input prior to as well as providing support for its decisions.

“Under the revised framework, the extra capital buffer that is required for so-called global systemically important banks will be reduced for such banks based in Europe by changing the designation of their exposures to companies in other European countries to be considered domestic exposures. Banks with substantial cross-European activity, such as BNP Paribas, likely will have material reductions in their systemic-importance capital buffers and other capital requirements. This is despite European countries not having a unified framework for deposit insurance and other bank-specific rules and protections. But that was not discussed in today’s announcement, and in fact no support or justification was provided for the change.

“Considering the U.S. federal banking regulators have representation on the Committee, this opens the question of whether they supported the change and if the American public can expect such shameful back-room dealmaking for the benefit of Wall Street’s largest banks. Capital is critically important to maintaining financial stability and preventing another taxpayer bailout. Domestic and international regulatory agencies and standard-setting bodies must not reduce capital requirements and must always seek consultation from the public, who will have to pay the bill the next time there is a financial crisis.”

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.

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