Germany Warns it May Walk away from Basel Negotiations

On Tuesday, November 15th, an official at Germany’s Bundesbank announced that if a number of conditions were not met, the country would not agree to a deal on new global capital rules “at any price.” According to a recent article from Bloomberg, Germany’s demands, laid out by Bundesbank Executive Board member Andreas Dombret, center around two “essential areas of action”. One is the preservation of a risk-sensitive framework in which banks are allowed to rely on internal models for calculating credit risk, a key determinant for capital requirements. This approach is supported by Japan’s Financial Services Agency but has been met with skepticism from the financial regulators in Washington. The second priority outlined by Dombret is a final agreement which leaves out an “out-put floor.” Dombret explained the Bundesbank’s position, saying “in theory, it acts as a way of putting a stop to the frivolous calculation exercises associated with using internal models. In practice, however, it works against the focus on risk. This is something we’re not prepared to accept. We have no interest in banks taking on additional unwanted risks. Basel III has developed other instruments, such as the leverage ratio, to fight against risks of modelling and misuse.”

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