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Bank of France head 'confident' about Basel agreement in coming days

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Bank of France head 'confident' about Basel agreement in coming days

The head of France's central bank is "confident" that an agreement over global banking regulations will be struck at a Dec. 7 meeting after many months of wrangling over the final outcome of a deal.

"I am confident that we are about to finalize a fair and reasonable agreement at our [Group of Governors and Heads of Supervision] meeting next Thursday," François Villeroy de Galhau said during a speech in Tokyo on Dec. 4. "This would be very welcome for our international financial order."

The Basel Committee of global bank regulators has been debating the adoption of a so-called output floor of 72.5%, severely restricting the ability of lenders to calculate the risk on their books based on their own formulas. European banks oppose the plan because it would considerably increase capital requirements for mortgages and business loans, which are much more important to them than to lend in the U.S. The measures would comprise the final peg of the Basel III package of post-crisis reforms, but are considered so sweeping in their nature that many — especially in Europe — have dubbed them Basel IV.

French lenders have been some of the toughest opponents of the plan, with Villeroy de Galhau himself declaring in June that a previous proposal of a 75% output floor was "unacceptable," though signs of a potential compromise have been growing.

Several parts of the Basel reform have been up for discussion, including the Fundamental Review of the Trading Book, which would require lenders to hold more capital against their trading books, and banks have been calling for regulators to ensure that the new rules be implemented in full across all regions.

Villeroy de Galhau, who is also a member of the ECB's governing council, said it was paramount that the regulation be implemented consistently.

"Unilateral deregulation would be nothing less than a lose-lose scenario with serious consequences for the stability of the global financial system — we would be paving the way for the next financial crisis as well as the competitive landscape for U.S., Japanese and European banks," he said.