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France and Germany call for easing of bank capital, bonus rules -document

Mon, 14th Sep 2020 16:12

By Huw Jones

LONDON, Sept 14 (Reuters) - France and Germany have called
on the European Union to ease bank capital and bonus rules to
avoid crimping the flow of credit to an economy trying to
recover from the coronavirus crisis, a paper seen by Reuters
showed.

World leaders agreed a package of capital requirements after
banks had to be shored up by taxpayers in the financial crisis a
decade ago and the EU is now putting into law final elements of
what is known as the Basel III accord.

It is also reviewing other EU banking rules to help banks
continue lending to companies which have been hardest hit by the
coronavirus pandemic.

In a paper to other EU states, finance ministry officials
from France and Germany suggest "avenues" on how to "faithfully"
implement the package while ensuring loans flow uninterruptedly,
and that variety in size of banks in Europe is acknowledged.

Basel introduces a "floor" or level of capital below which a
bank cannot go to cover risks from loans on its books.

France and Germany say in the paper that the floor should in
the main only relate to risk-based capital requirements.

Under the new rules, banks would have to apply a flat risk
weighting of 100% of capital on loans to companies which are not
given a score by credit rating agencies, something that poses
"serious risks" to financing the economy, the paper said.

Unlike other parts of the world, almost 75% of company
exposures are unrated in Europe.

The EU should opt for a "hybrid approach" that would allow
banks to cut the risk weighting to 65% for financially sound
companies, the paper said.

Disclosure requirements for small and non-complex banks
should be further reduced to cut costs, it added.

Under EU rules, banks pay a portion of a bonus upfront in
cash, with the rest deferred over several years and paid in
shares.

"Requirements on variable remuneration should not apply to
small and non-complex banks where the share of variable
remuneration is sufficiently low," it added.

The definition of a non-complex and small bank should
exclude derivatives contracts concluded on behalf of customers
to hedge risks and not for speculation, it said.
(Reporting by Huw Jones;
Editing by Alexander Smith)

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