The EBA has just revealed that full implementation of the Basel IV recommendations will, on average, increase the capital requirements imposed on European banks by 24.4%. According to the EBA, the higher capital requirements will mainly hit large European banks, while the impact on smaller banks will be limited. Finance Denmark does not agree with this view.
"EU banks will have to hold massive amounts of capital in order to comply with the requirements. This will also be the case in Denmark," says Ulrik Nødgaard, Managing Director of Finance Denmark, and continues:
"An expert group of representatives from Danmarks Nationalbank, the financial sector, the Danish FSA and others previously estimated that the capital requirements to be met by the largest Danish banks and mortgage lenders will increase by about DKK 78 billion, or 34%. This is a very significant increase and will cost large as well as small Danish credit institutions billions. It will affect homeowners and businesses and hurt growth and job creation. Also, it will provide an unhealthy incentive to finance high-risk activities, while low-risk loans are penalised."
From a Danish point of view, the Basel IV requirements are completely unnecessary, as Danish credit institutions have already built up capital reserves of more than DKK 100 billion since the financial crisis. At the same time, Danish credit institutions already apply highly reliable risk assessment methods.
"The financial sector will continue working closely and constructively with the Danish government, parliament and other authorities to ensure that well-capitalised Danish credit institutions with financially sound, creditworthy customers will not become subject to unnecessarily costly requirements that do not reflect an increased risk," says Ulrik Nødgaard.
Today, credit institutions reserve less capital when lending to low-risk projects than to high-risk projects.
"The Basel IV requirements distort this sound and sensible correlation between risk and capital reserves. This is a concern that we share with the Danish authorities. We will therefore continue our efforts to find a European solution that is sufficiently flexible to allow for the special and reasonable Danish circumstances," says Ulrik Nødgaard.
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