Champagne and Moselle wine: le banks, especially those French and Germanand already under pressure in the last week as a result of the European elections and especially in view of the elections in France, are toasting the EU's decision to postpone the chapter of the Basel 3 regulatory tightening relating to bank market risks, the so-called Frtb, Fundamental Review of the Trading Book.
The rest of the rules regarding the bank capital has already been published on Official Gazette: Most will have to be applied next year, while some will come into force in the next few weeks. In particular, it is worth noting the extension for three years of the so-called "prudential filter" on government bonds which also facilitates Italian banks.
The reasons for the postponement: the decisions of the USA, Switzerland and Great Britain are officially awaited
Officially the postponement represents a response to the slowdown in legislation in the USA, as he underlined Mairead McGuinness, the EU Commissioner for Financial Services. In fact the Fed made it known in recent days, following pressure from American bankers (primarily the CEO of JP Morgan, Jamie Dimon), that it wanted to present a new proposal on the text defined at a technical level by the Basel Committee. And the forecasts speak of months to have a legislative proposal in the USA and in any case not before 2026. “The postponement of one year guarantees a level playing field at a global level for the large European banks that compete with other global operators. It also gives us time to see what others are doing. We hope that the US introduces Basel 3 as soon as possible” said McGuinness who on the same occasion also lamented the lack of progress on common insolvency regulations in Europe.
The focus is also on the next decision in Switzerland, which, at the push of the giant ubs and of some smaller banks, according to the Bloomberg agency, is also considering extending the launch of Basel 3 to 2026, again on the subject of market risks. It remains to be seen whether the EU's choice will also have repercussions in the UK, where for now the launch date is set for July 2025.
French and German banks raise a glass
The fact of having postponed at least the chapter "market risks” is definitely one less headache in this moment of great tension, especially for French and German banks. The postponement, which was within the Commission's powers limited to market risks, was in fact loudly invoked by President Emmanuel Macron and the governor Francois Villeroy de Galhau who took action to protect the large banking institutions national. According to Equita's forecasts, the capital surplus required by the new Basel 3 attributable to market risks is equal to 10% of the total on average. But for the large French banks the impact is higher, as well as for the two big German banks Deutsche Bank and Commerzbank.
Just them French banks they are in great pain at the moment, worried that a possible victory for Le Pen in the next elections of 30 June and 7 July could have repercussions on the French public finances. This was immediately revealed by the spread between French ten-year bonds (Oat) and German bunds which widened significantly: today at 72 basis points after peaks of around 80 bps, while before the European elections it was below 50 bps. This has had repercussions on the banks, whose portfolios are full of government bonds, which have seen huge drops on the stock market.
Positive opinion from Abi and Mef on the rules to be applied immediately
Meanwhile it has been published on Official Gazette the rest of the text with the final rules of Basel 3 (also known as Basel 3+), with which the requirements of capital for banks, especially those that make extensive use of internal models. In this context, institutions will have to respect minimum thresholds (through the so-called output floor), even if a significant transitional regime is envisaged.
The Ministry of Economy and ABI, the Italian banking association, have expressed a positive opinion on the new rules on capital requirements for banks, underlining the implementation of a series of mitigations proposed by European parliamentarians at the request of Italian institutions. “The president of ABI Antonio Patuelli and the acting deputy general manager Gianfranco Torriero agree with the Minister of Economy, Giancarlo Giorgetti, on the positive opinion for Italy for most of the new Basel rules", we read in a note released yesterday.
La most of the rules will come into force in Europe since 2025 and then the Eba, the European banking authority, has six months to clarify how the different chapters must be applied or possibly smoothed out. But some of them (such as the so-called Crr3 regulation and the Crd6 directive) will come into force in next weeks. It should be noted for example that the rules on the so-called "prudential filter" for government bonds, which will be applied by banks starting from the September balance sheets (in some cases therefore between 3-4 weeks), while they cannot be applied for the previous quarter given that they will come into force on 30 June.
What is the prudential filter on government bonds
An important provision contained in the approved text of Basel 3 concerns the fact that the banks will to freeze starting from third quarter il value of a significant part of government bonds until 2025 for capital purposes. In fact it was extending by three years the so-called "prudential filter” which expired at the end of 2022 and which allows banks not to consider the assets in the capital price changes of securities held in the "Fair value through Other Comprehensive Income" category, where available-for-sale bonds are mainly included, which represents approximately half of the overall public securities portfolio. The Bank assets will thus be less volatile with respect to any shocks on government bonds and only the reserved portfolio trading will be subject to market prices.
Among other Basel 3 rules: also agricultural land as collateral
There are other measures newly introduced, considered positive by the Abi. For example, for the first time you will be able to use i agricultural land including financing guarantee. Furthermore, a zero weighting is foreseen for the shares in the capital of central banks, therefore not weighing on the capital. On the subject of non-performing loans the rule that allows capital requirements not to be penalized in the event of large sales of NPLs has been extended until the end of 2024 and the EBA has been given a mandate to review the treatment of costly restructurings for the purposes of classification as default. Furthermore, the regulations on suitability requirements for bankers the so-called “fit and proper”.
And again: they were excluding holdings from the relevant scope of consolidation to improve the treatment of minority interests and there is the introduction of transitional treatments for exposures to unrated companies and for mortgages secured by properties with a low probability of default. The Abi sees positively the fact that some measures such as the factor of support for SMEs and the most favorable weighting for loans secured by employee loans of salary or pension.
Ok from the EU Council to the CMDI's rules on banking crises
In the meantime, the OK has arrived EU Council to the new rules on the management of banking crises, the so-called Cmdi package, an acronym which stands for Crisis Management Deposit Insurance. The new rules provide more margins for using national deposit protection funds (DGS), such as the Italian FITD, while they will impose stringent conditions for the use of the European fund (SRF, Single Resolution Fund). Thus there will be more freedom to manage banking crises with the DGS, but at the same time it will be complicated to access common European resources.
