June 30, 2009 / 8:28 AM / in 8 years

UPDATE 1-Bundesbank's Zeitler wary on new financial rules

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FRANKFURT, June 30 (Reuters) - Some changes to banking rules proposed in the wake of the financial crisis could discourage banks from lending, a top Bundesbank official said on Tuesday.

Bundesbank Vice-President Franz-Christoph Zeitler warned that banks’ equity capital would suffer if they were forced to take an immediate 10 percent haircut on risky assets, as demanded by the EU Commission.

“It runs counter to the financial market stabilisation law’s goal of boosting the willingness and capability of banks to lend,” Zeitler said.

Banks still face grave consequences from the steep slump in output, profitability and employment at German companies, despite early indicators the economy will stabilise over the course of the year, he said.

“Most banks have wisely increased risk provisions significantly this year,” Zeitler also said in the text of a speech. “However, there are doubts whether this is enough to absorb the massive (industry) downturn,” he added.

Zeitler also said there are further risks in the financial markets within the next 12 months, and singled out the rating agencies’ plans to change their methods of rating covered bonds to lay more weight on the issuers’ risk profile.

The new regulatory framework must also work to reduce procyclicality of the financial system, Zeitler said. (Reporting by Jonathan Gould and Sakari Suoninen; editing by Chris Pizzey)

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