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BPFI position paper on the finalisation of Basel iii

In advance of the European Commission (EC) legislative proposal transposing the internationally agreed Basel iii capital standards in 2021, Banking and Payments Federation Ireland (BPFI) has set out its key recommendations in a new position paper.

With 2020 being the first “real life stress test” for the EU banking sector since the financial crisis, we believe it provides EU policymakers with valuable insights into how the international standards should be implemented at EU level.

As the EU now looks to lay the foundation for a strong and sustainable economic recovery, it is crucial that the EU banking sector can continue to support customers and businesses in the months and years ahead, particularly against the backdrop of a low interest rate environment.

The transposition of the final Basel iii reforms into EU law will therefore play a key role in determining the future direction of the EU banking sector and its contribution to a strong and sustainable economic recovery.

Our key recommendations to EU policymakers focus on:

  • Ensuring the specificities of the EU banking sector are taken into consideration when transposing the agreement and that the rules do not lead to a significant increase in overall capital requirements as agreed by EU leaders.
  • Using all Basel discretions when implementing the new standardised approach for calculating operational risk.
  • Calculating the Output Floor (OF) based on a “parallel stack” approach and applied on a consolidated basis across the EU banking groups.
  • Retaining the supporting factors already in place for SMEs and infrastructure projects; and
  • Continuing to apply the CVA exemption as a way to ensure there is no significant impacting for EU companies commercial hedging activities