AFME welcomes EU political agreement on the implementation of the Basel 3 standards, but cautions against expendable capital increases

AFME has expressed its support for the recent political agreement reached by the EP, EC, and EC regarding the implementation of Basel III standards in Europe. AFME acknowledges the significance of this agreement in concluding the regulatory repair program initiated after the financial crisis. It believes that the agreement will strengthen banks‘ resilience and recognizes their crucial role in financing the economy.
AFME commends European banks for raising substantial amounts of equity capital since the financial crisis, resulting in record capital levels and demonstrating their strong resilience. The association emphasizes that the soundness of the banking system is not solely dependent on regulatory requirements setting capital levels but also requires effective supervision. It cautions against further increases in minimum capital requirements without conducting a comprehensive economic assessment. AFME highlights the importance of closely monitoring the impact of the agreement in line with the EC’s impact assessment.
AFME specifically supports the agreement’s inclusion of a limited number of adjustments to reflect European market specificities while remaining faithful to Basel principles and global standards. The association welcomes improvements in the treatment of exposures to unrated corporates and low-risk real estate lending, especially as the Output Floor is introduced. AFME also acknowledges the impact of the Output Floor on securitization and appreciates the introduction of a transitional arrangement to mitigate this impact. However, the association emphasizes the need for a more extensive review of the capital treatment for the securitization framework to ensure its effectiveness in financing the economy’s transition needs between bank balance sheets and market funding.
AFME notes the legislators‘ desire to expedite the implementation of the Basel framework for cryptoasset exposures. While AFME believes a full implementation of the international standard would have been preferable, it suggests prioritizing the development of a final standard concurrently with the ongoing reviews of the Basel Committee.
AFME stresses the importance of closely reviewing the implementation date of 1 January 2025, to ensure global consistency and competitiveness in the regulatory framework.