EU prudential supervisors and central banks have written to the EU Commission in support of a full, timely and consistent implementation of the Basel III agreement, saying that diluting the framework would not be in the best interests of Europe. The letter highlights three key points:
- The output floor should be implemented as agreed in Basel, with all risk-based capital measures and buffers calculated on the basis of one single set of risk-weighted assets. This would reduce the variability of risk-weighted assets and build confidence in banks’ capital structures. It would also improve the level playing field between banks using internal models and banks using standardised models, as well as between different banks using internal models worldwide.
- The new Basel standardised approach for credit risk should be implemented as agreed globally. This new approach is more risk sensitive than the old one and entails a delicate balance between the risks in different exposure types which should be preserved.
- The EU should refrain from making further exemptions from Basel III or from making the banking regulatory framework more complex.
The ECB and EBA have separately written to the Commission to express the same views.