Basel III threatens to substantially raise banks’ capital requirements, affecting recovery and lending
- International standards such as Basel III play an important role in promoting a reliable and prudential banking sector and a global level playing field. However, the implementation of Basel III in the EU must reflect the characteristics of the European and Nordic financial markets. Capital requirements should accurately reflect risks, and their increase should be kept as low as possible.
- A key concern for Finance Finland is that the Basel III rules may lead to higher capital requirements, that do not fully reflect actual risk levels. The regulation is expected to 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. A genuinely risk-based framework is essential.
- The introduction of the output floor is one of the main elements of the Basel III package. While Finance Finland acknowledges the objective of enhancing comparability between banks, the output floor risks reducing the role of well functioning internal models and weakening incentives for sound risk management.
- It is important that the implementation of Basel III does not weaken the competitiveness of European banks. A stable and credible regulatory framework will strengthen resilience while also enabling banks to support sustainable economic growth.
