By Simon Miller
The UK Chancellor George Osborne has criticised EU talks over the Basel III banking rules as idiotic.
Following ten hours of talks over the implementation of Basel III, Osborne warned that failure to introduce the global banking regulation would lead to ridicule from the financial markets.
He commented: “We are not implementing the Basel agreement as anyone who will look at this text will be able to tell you. I’m not prepared to go out there and say something that will make me an idiot five minutes later.”
The UK wants to national regulators to be able to impose extra capital requirements above the planned EU level of 7% on a case by case basis without further permission from EU regulators - a move supported by Spain and Sweden.
"If we duck the challenge of implementing Basel we could face very important challenges to confidence in Europe this year," Osborne added. "We certainly won't fool the financial markets, who will continue to be wary of investing in Europe and investing in European banks.
"Are we implementing the Basel agreement or not? It won't just be a political failure. It could be an economic failure for this continent."
However, France is backing gentler rules on the definition of risky assets and the Brussels veto over nationally-imposed capital requirements.
French finance minister Francois Baroin said the UK’s proposal would give a “large degree of freedom beyond the control of the EU” that would “create a distortion of competition” that would penalise weaker banks.
Meanwhile, the Reserve Bank of India (RBI) has issued its final guidelines for implementing Basel III capital regulation in 1 January 2013.
Although phased in, a capital requirement of Tier 1 capital of at least 7% will be fully implemented by 31 March 2013.
The total capital ratio, including Tier I and Tier II, must be at least 9% but RBI told banks that “the capital requirements for the implementation of Basel III guidelines may be lower during the initial periods and higher during the later years”.
In its notification to banks, RBI added: “While undertaking the capital planning exercise, banks should keep this in view.”