US Basel delay triggers Europe fears

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IFLR
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Speculation that the US delay of Basel III implementation gives its banks a competitive advantage over their European counterparts has been dismissed by lawyers on both sides of the Atlantic.

The level playing field, however, is largely attributable to similar delays expected in the EU.

US bank regulators’ November 9 statement that their proposed Basel III rules will not become effective on January 1 sparked concern of damage to European banks’ competitiveness.

“I’m not particularly convinced by that argument,” said London-based Ashurst partner James Perry, noting the likely delay in Europe. “I don’t think it means US banks will get some sort of edge over European competitors because of orchestrated delay.”

“We may well see political agreement in Europe by the end of this year, but I don’t think anyone expects it to take effect in January 2013,” he added.

EU Internal Market Commissioner Michel Barnier has insisted that the January 2013 timeframe must be met, and the European Parliament’s lead negotiator on Basel III has said the US decision won’t impact EU plans. But the market is more sceptical.

Nick O’Neill, a UK-trained and New York-based partner in Clifford Chance's international regulatory practice said he would not be surprised if he saw implementation of the rules pushed back into 2013. “The US delay does give the EU a bit of breathing space,” he said.

If, however, Europe does implement the latest Basel accord before the US, American banks could see a marginal advantage in relation to capital charges for structured products. For these instruments, European banks would have to bring their trading exposures into line with banking book exposures before those in the US.

“With securitisation you can potentially see there being a relatively short-term advantage,” said O’Neill. “But the truth is that new business lines won’t be set up to take advantage of that.”

With the January 1 transitional phase deadline fast approaching, EU legislators have only limited opportunities to agree changes to Capital Requirements Directive IV and the Capital Requirements regulation

On October 31, the Financial Stability Board (FSB) announced that only eight of the 27 countries that signed the latest Basel accord will meet the January 1 transitional deadline.

See International Financial Law Review for the full article, and for more banking reform coverage