European Banks Face $153 Billion Capital Hole Under Basel Rules

(Bloomberg) -- Large European banks need about 135 billion euros ($153 billion) to comply with the latest capital standards agreed to by the Basel Committee on Banking Supervision, according to a new estimate that raises the stakes for policy makers and the industry.

Global regulators clinched a deal in 2017 on how banks must measure the risk of mortgages, loans and other assets on their books. European lenders have argued they face an excessive burden and called for adjustments when the updated framework is brought into European Union law.

“The capital impact is almost entirely driven by large globally active banks,” the European Banking Authority, which conducted the latest assessment, said in a statement. The exercise assumed that banks’ balance sheets remain static throughout the transition period, which lasts until 2027.

The new estimate is several times higher than previous ones put forward by the EBA.

One of the goals of Basel III was to increase the credibility of banks’ asset risk calculations in the wake of the global financial crisis. A major stumbling block in the negotiations among regulators was the so-called output floor, which restricts how low banks can drive their capital requirements by gauging asset risk with these models.

To contact the reporters on this story: Alexander Weber in Brussels at aweber45@bloomberg.net;Silla Brush in London at sbrush@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Marion Dakers, Ross Larsen

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