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European bank revolt over regulation grows

They have largely swallowed the new Basel III framework, which is designed to ensure lenders have enough capital to withstand future downturns. But there are signs of rebellion as global banking supervisors plot other ways to tighten the regulation of those blamed for exacerbating the crisis.

Banks in Europe say too much red tape will prevent them from providing much-needed financing to companies, thereby killing off a nascent economic recovery.

“We can cope with Basel III, but we don’t need the gold-plated rules that come on top right now,” Klaus-Peter Mueller, supervisory board chairman of Germany’s second-biggest lender Commerzbank said on Friday.

Mueller’s view was echoed by the chief executive of Austria’s Raiffeisen International.

“The problem is that regulation is suffocating. We are being flooded with regulation and at the same time it is expected that we still create capital and liquidity,” Herbert Stepic said.

“If you ask me what is the bigger problem, the market or regulation, I would say it’s regulation,” Stepic added.

Regulatory roulette

Earlier this week, Deutsche Bank Chief Executive Josef Ackermann said the onus was now on regulators and politicians to ensure that momentum didn’t end up distorting competition or imperil a sustained economic recovery.

“The G20 consensus on a coordinated crisis response is showing signs of weakening, as lawmakers increasingly feel the domestic political pressures and want to be seen as ‘doing something’. I regard these developments with concern,” Ackermann said this week.

Central bankers are already working on a new round of bank stress tests in Europe, shortly after agreeing on Basel III capital requirements. This comes in addition to new rules on bonus payments and bank levies, causing some bankers to squirm.

“Banks have to be doing business and not just fill in forms. There must be a right balance,” said Guido Ravoet, secretary general of the European Banking Federation.

But some appear to think the banks are crying wolf.

Bundesbank official Andreas Dombret signalled that Basel III rules alone would not scupper an economic recovery.

“Fears of dire consequences appear to be exaggerated,” Dombret said, adding that it’s too early to discuss the impact of supplementary rules, since they have not yet been formalised.

And IMF Managing Director Dominique Strauss-Kahn said much remains to be done.

“There is still a lot to do because regulation is fine and necessary but there are three pillars: regulation, crisis resolution and financial supervision. On financial supervision we have not done enough,” Strauss-Kahn said.

Deutsche Bank estimates Basel III rules will increase so-called risk weighted assets for European investment banking businesses by 77 percent. This would mean European banks needing to raise well over 300 billion euros of capital, on top of the approximately 450 billion euros raised during the three years of the crisis in more benign market conditions, Deutsche says.