Basel III threatens to substantially raise
banks’ capital requirements,
affecting recovery and lending
The proposed Basel III reform would have significant effects for European banks. Capital requirements could rise noticeably higher than in the United States, for example. Prudential regulation determines how much core equity capital a bank must have in relation to its risk-weighted assets.
According to the Finnish Financial Supervisory Authority FIN-FSA, Basel III would result in the average increase of 15–20% in banks’ capital requirements in Finland. The calculation of capital requirements would also less accurately reflect risks.
The regulation would hit mortgages and corporate loans the heaviest, and Nordic banks have a lot of them. This would damage the banks’ capacity to finance economic recovery and green investment.
The Finnish financial sector considers it important to implement the reform in a way that takes into account the special characteristics of the EU financial market. Capital requirements should accurately reflect risks, and their increase should be kept as low as possible.
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