–Urges United States to Implement Basel III

VIENNA (MNI) – The new capitalization and liquidity guidelines for
banks, known as Basel III, may have “certain negative effects over a
limited period of time,” but over the long-term they will “increase
stability in the banking system and bring a more stable economic
environment, European Central Bank Governing Council member Ewald
Nowotny said here Monday.

“In fact [the short-term impact] will not be so much ‘negative’ but
more ‘pro-cyclical’ effects,” Nowotny clarified later.

He added that Basel III’s impact on bank lending might even be a
positive one, noting that “in the past not all lending growth had been
macro-economically beneficial…If it leads to more macro-economically
cautious lending policies, this might be positive.”

Nowotny, who heads the Austrian National Bank, urged worldwide
implementation of the new Basel III rules, especially in the United
States. He said it was a “disturbing development that big U.S. banks had
decided to lobby against implementing Basel III.”

“If there is no level playing field at least with minimum
standards, that means there is also no case for full liberalization of
financial services and that would be a massive [setback] for the global
financial economy,” Nowotny argued.

“The main and the most important issue is that we really have to
understand Basel III is reality and we have to adjust to it. There is no
use ignoring it,” he said, also directing his words at Austrian banks,
which had very outspokenly criticized the new regulation.

Nowotny stressed that “there are no plans to postpone Basel III,”
but “there might be a discussion on which banks it will apply to,” since
some suggest only internationally active banks should fall under the new
regulatory framework.

Nowotny added the “real challenge” now is to “avoid a negative
feedback loop” from the slowdown of the real economy back into the
financial system.

One problem, explained said, might be banks having to “deleverage
on the asset side to reach the Basel III quotas, and this is what we are
afraid of, as it might have a negative effect on the economic growth.”

He said he was “afraid” there will be competition among national
regulatory agencies in suggesting new regulations.

“I see a danger that we have a number of independent regulatory
bodies making regulatory proposals which sometimes do not fit into the
general picture – this is something where further work is needed,” he
stressed.

Nowotny said that coordination work “might be a task for the
European Stability and Risk Board (ESRB).” He vowed to “try and
initiate” a further coordination of these independent regulatory
agencies, as a board member of the ESRB, which is chaired by the
president of the ECB.

Nowotny also called for a “Europe-wide solution of burden sharing”
in case of banks running into trouble. Under the current arrangement,
“it is always the national taxpayer lending support” in such a case, he
noted.

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