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BPFI response to the European Commission consultation on Basel III finalisation

On 20 December 2019, Banking and Payments Federation Ireland (BPFI) responded to the European Commission (EC) public consultation on the final implementation of the internationally agreed Basel III standards.

As the final part of the post-financial regulatory reforms for the banking industry, the response highlighted BPFIs support for global standards but also the need for EU policymakers to pay particular attention to the specificities of the EU market and the political understanding that the measures would not result in a significant increase in capital requirements.

Against this backdrop, the response put forward the following recommendations.

  • The implementation of the output floor (OF) should only apply to internationally agreed capital buffers and at the highest level of consolidation in order to ensure that Irish/EU banks are not put at a competitive disadvantage to those in other jurisdictions and that there is no further “trapping of capital” inside banking groups.
  • Further transparency should be integrated into the Pillar 2 process in light of the OF and its overall intention to reduce variabilities in internal models. This will help ensure that perceived risks are not accounted for more than once.
  • EU policymakers should look to exercise the discretions allowed for in Basel III around the calculation of operational risk, and specifically look to cap the Internal Loss Multiplier (ILM) at 1 and to increase the loss data collection threshold to €100,000
  • The retention of the EU’s SME and infrastructure supporting factors in the Capital Requirements Regulation (CRR), considering the valuable contribution it plays in supporting lending to the real economy.
  • Explore the option of integrating a sustainable finance supporting factor into the capital framework as a way to incentivise the transition to a more environmentally friendly economy.

For further information on the suggestions put forward by BPFI, please see our full response here.