France, Germany warn against stricter capital rules for banks

BERLIN (Reuters) - France and Germany warned on Friday against the introduction of new rules that would force banks to set aside more capital, saying this could choke off private lending and hurt growth prospects.

French Finance Minister Michel Sapin arrives for a meeting after Britain voted to leave the European Union, at the Elysee Palace in Paris, France, June 24, 2016. REUTERS/Stephane Mahe

Speaking after a meeting of the German-French economic council in Berlin, German Finance Minister Wolfgang Schaeuble and his French counterpart Michel Sapin said it was critical that new Basel III rules did not put European banks at a disadvantage.

The Basel Committee made up of regulators from nearly 30 countries has come under intense pressure from the banking industry and European governments to rein in the reforms it is now completing.

The Basel III rules, which are aimed at making the global banking system more resilient following the 2008 financial crisis, could force banks to hold more and different types of capital to insulate themselves during downturns.

“We want to avoid specific disadvantages for European banks that may arise from Basel III,” Schaeuble said during a news conference, in cautionary comments echoed by Jens Weidmann, the head of the German Bundesbank.

Sapin said both governments were “preoccupied” with the rules currently being discussed under Basel III and would prefer that, if changes were made, that they not increase capital demands for banks.

“Today the issue is to have enough capacity to finance the real economy and companies. And we shouldn’t hamper them on this,” Sapin said, adding that growth in Europe had improved but was not sufficiently strong.

Turning to France’s weaker-than-expected performance in the second quarter, Sapin said Paris was sticking to its growth forecasts for this year and next.

“It’s a disappointing quarter but it comes after an extremely strong, powerful quarter and absolutely doesn’t affect our growth forecasts of around 1.5 percent for this year and next,” he said.

France’s economy slowed for the first time since early 2013 in the second quarter of 2016, hurt by a dip in consumer spending, in a blow to President Francois Hollande ahead of a presidential election due next April.

Reporting by Michael Nienaber and Noah Barkin in Berlin, additional reporting by Michel Rose in Paris; Editing by Noah Barkin