Exclusive: Global regulators close to final deal on bank capital - sources

LONDON (Reuters) - Global banking regulators are close to a final deal on capital rules that aim to ensure banks can withstand financial shocks, with Europe and the United States set to compromise on a major sticking point, banking and regulatory sources said on Tuesday.

FILE PHOTO: The euro sign landmark is seen at the headquarters (R) of the European Central Bank (ECB) in Frankfurt September 2, 2013. REUTERS/Kai Pfaffenbach/File Photo

Completion of these regulations, known as Basel III, would mark a pause in a near decade long effort by global regulators to put banks on a sounder footing after many were bailed out by taxpayers in the 2007-2009 financial crisis.

The struggle to finalize Basel III is a symptom of regulatory fatigue which has set in now that governments are focusing more on economic growth and are wary of burdening banks with ever more stringent capital requirements.

The Basel Committee met last week to try to finalize this final part of the regulatory package, which has faced some resistance.

Europe and the United States have disagreed over the extent to which banks can use their own risk models to calculate their capital requirements.

Basel has been trying to set an “output floor” that would limit the extent to which a bank’s capital requirements based on the lender’s own risk model can diverge from how they would be calculated under a more conservative model set by regulators.

Europe has wanted a floor set at 70 percent, while the United States has called for 75 percent. A deal at 72.5 percent now looks on the cards, the sources said.

They also said that this requirement would come with a lengthy phase-in, meaning it could be up to a decade or more before the changes are fully implemented.

Basel’s oversight body of mainly central bankers chaired by European Central Bank President Mario Draghi now needs to approve any deal and could broker one this week, the sources said.

Members of a committee which oversees the Basel rules will be in Washington this weekend to attend International Monetary Fund meetings. A meeting of this committee that would have finalised the rules had to be called off in January because Europe and the United States dug their heels in over the output floor dispute.

“The committee has made progress on a compromise solution - although discussion is still ongoing - that would avoid an excessive impact and too long a transition,” one regulatory source said.

Sources said France was still concerned that setting a floor above 70 percent could mean significant increases in capital for its banks, but it now appears more isolated.

French Finance Minister Bruno Le Maire told reporters in Luxembourg on the sidelines of a meeting of EU finance ministers on Tuesday that there must be no big increase in capital requirements.

Further discussions on the Basel package will be held in Washington, Le Maire said.

“It will be up to the central banks to try to build a compromise on that,” Le Maire said.

Additional reporting by Maya Nikolaeva in Paris and Francesco Guarascio in Luxembourg, Editing by Rachel Armstrong and Jane Merriman