European regulators’ proposed new approach to implementing the Basel III capital rules could impact plans in other major markets too, says Fitch Ratings.
In a new report, the rating agency said that proposals announced by the European Commission on Oct. 20 would delay the implementation of the final rules for two years until the start of 2025, and would also soften the capital impact of the new requirements.
Fitch said that the proposed approach would result in an average increase to Tier 1 capital requirements of between 6.4% and 8.4% by the end of the phase-in period, compared with the 18.5% increase without the proposed adjustments.
“Despite the diluted capital impact, EU banks will face higher capital requirements on their mortgage loans and unrated corporate portfolios once the transitional provisions end,” it said, noting that this will increase minimum capital requirements by more than for U.S. banks.
Additionally, Fitch said that Europe’s later adoption of the final Basel III rules “may influence the go-live dates in other developed markets, such as the U.S. and the U.K., in response to level-playing-field concerns.”
Japanese regulators are also already proposing to defer implementation by a year to March 2024 for some smaller banks, it said.
Europe’s proposals likely won’t be finalized until the second half of 2022, Fitch said.