Bundesbanker urges U.S. to implement Basel III

FRANKFURT Wed Nov 21, 2012 5:30am EST

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FRANKFURT Nov 21 (Reuters) - A member of the German Bundesbank's board urged the United States on Wednesday to implement the international agreement on bank capital known as Basel III on time or else risk causing renewed stress on financial markets.

U.S. banking regulators said earlier this month they did not expect the Basel III rules, designed to make the global banking system more resilient in the aftermath of the financial crisis, to take effect on Jan. 1.

Andreas Dombret, in charge of financial stability on the board of Germany's central bank, said the higher capital requirements under Basel III reduced the probability of bank failures and therefore the associated risks to taxpayers.

"I call on my colleagues in the U.S. not to unexpectedly question the whole framework in the 11th hour - after taking part in its negotiation during the entire process," Dombret said in a speech at the Euro Finance Week conference.

"Every country must absolutely avoid seeking advantages by watering down, or by reluctantly implementing agreed reforms. Such a policy would only lead to new tensions in the financial markets during a time of anyhow increased stress. We simply cannot afford going down this route," he added.

Implementation of the last set of Basel rules - Basel II - was plagued by delays, especially in the United States, and some observers have worried that the new rules could face the same obstacles.

Dombret also pointed to conflicting incentives set by different regulatory frameworks, such as for example by Basel III and Solvency II - the new risk-capital rules for Europe's insurance sector.

Dombret, who has worked at Deutsche Bank, JP Morgan, Rothschild and Bank of America, also said he did not believe that the separating of deposit-taking and lending from capital market transactions would prevent another banking crisis.

"Only the credible threat that even systemically important financial institutions may exit the market, and that this can be executed in an orderly fashion, will restore trust in the rules of the game," Dombret said. (Reporting by Eva Kuehnen)

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