Much of the rhetoric surrounding the seismic events of 2016 has been based around the coming death of globalisation. However, as Brian Caplen describes, the global banking model is already at the autopsy stage. 

Much has been made from the Trump and Brexit wins of an anti-globalisation vote and in the case of the former, policies likely to lead to a US retreat from globalisation. In banking, however, globalisation is already dead, with the US and the EU increasingly going their own ways on major rules. 

The mood was captured best by the reported comments of Deutsche Bank CEO John Cryan at a Frankfurt banking conference. He said: “The regulations we are facing for the banking sector globally are only for the benefit of the US. I think it’s about time that Europe started introducing rules that benefited Europe and didn’t play to some policy of global harmonisation that sounds good on paper but is not relevant to anything.”

The particular beef that European bankers have are so-called Basel IV measures to restrict the use of internal risk models that could substantially increase capital requirements for mortgages. Since US banks usually sell their mortgages to Fannie Mae and Freddie Mac, and more generally American companies – in contrast to European ones – rely less on banks and more on capital markets for their financing, they would be less affected by the rule change. 

Fitch Ratings recently expressed concern that “Basel Committee discussions on ‘Basel IV’ at the end of November may expose deep divisions between national members and could lead to further differentiation between the EU and internationally agreed Basel standards”.

The Financial Times has also reported that Brussels plans to introduce rules to ringfence foreign banks’ capital as a counter to US intermediate holding company rules that have been a big concern for European banks. 

So in opposing globalisation it seems that US president-elect Donald Trump’s work has already been done for him by bank regulators. 

Meanwhile, it would be foolish to think that individual EU members are all signed up to the same set of rules. Fitch reports also that the Capital Requirements Directive IV package that implements Basel III for all EU banks contains more than 150 national options and discretions, and that ”as a result, the Basel Committee concluded that overall the the EU capital regulations are materially non-compliant with the Basel framework”.

Brian Caplen is the editor of The Banker.


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