A leader in Germany's central bank is urging the United States and the European Union to "keep their word" and implement a recently finalized framework for measuring internal risk, dubbed "Basel IV."
Deutsche Bundesbank Executive Board member Andreas Dombret told the Institute of International Bankers on March 5 that in the face of political movements to establish greater sovereignty, such as Brexit, the U.S. and the E.U. should implement the updated Basel accord "in its entirety," including rules addressing trading books.
Dombret said the broad conversation on international coordination is threatened by the recent popularity of protectionist policies. Without referencing the U.S. and President Donald Trump's planned tariffs, Dombret said protective trade policies would lead to a trade war "that would ultimately produce losers."
Countries should commit to establishing the minimum standards set by Basel to "avoid regulatory conflict or arbitrage," and they should only make changes that would make regulation more stringent or "gold plated," he said. But Dombret reiterated that the application of Basel accords are aimed at regulating internationally active banks, adding that countries should feel free to apply different sets of rules to smaller national banks that pose no threat to international financial stability.
Dombret expressed worry that some parties may not agree to the negotiated minimum standards. He said if the U.S. does not commit to applying the Basel IV standards, European banks may ask their regulators to "water it down" and weaken EU capital rules to level the playing field.
"You have to faithfully commit on both sides to fully implement it," Dombret said.
U.S. bank regulators have not taken any actions suggesting that they would stray from the finalized Basel rules, but President Donald Trump's "America first" policy has energized Republican calls for regulators to halt negotiations with international rulemaking bodies like the Basel Committee.
Dombret said he had met with Federal Reserve Chair Jerome Powell and Vice Chairman of Supervision Randal Quarles, but did not offer details on what was discussed.
At the same conference, Deputy Comptroller of the Currency Vance Price said his office is intent on following the Basel IV rules but is still in the process of soliciting public comment on how the U.S. regulators should apply them. Price's agency, the OCC, oversees U.S. banks with national charters.
