German financial watchdog says Basel IV will hit some German banks

FRANKFURT (Reuters) - New capital rules being drafted by global banking regulators will burden some German lenders, albeit in a reasonable fashion, the head of German financial watchdog Bafin said.

Felix Hufeld, President of Germany's Federal Financial Supervisory Authority BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) visits Thomson Reuters office in Frankfurt, Germany, September 22, 2016. REUTERS/Ralph Orlowski

The Basel Committee of banking supervisors from nearly 30 countries earlier this month postponed the approval of long-awaited rules designed to avert a repeat of the financial crisis.

The Group of Central bank governors and heads of supervision (GHOS) are now working on a compromise on how much capital lenders have to set aside against loans and other assets.

The Basel III reform has proven divisive, with European regulators worrying that higher capital demands would curb bank lending - the prime source of funding for companies in the region.

The main sticking point relates to a “floor” on how much capital a bank needs to hold irrespective of what its own model says.

Bafin president Felix Hufeld said in a speech on Tuesday that a possible compromise would still be an imposition for some German banks. “But impositions which we as regulators view as appropriate and bearable.”

Germany's flagship lender Deutsche Bank DBKGn.DE is seen among those hardest hit by the new capital rules - unofficially dubbed Basel IV - as they are expected to inflate Deutsche Bank's risky assets by 125 billion euros or roughly a third.

The lender, which is grappling with a $7 billion bill from U.S. authorities over its sale of toxic mortgage securities and is expecting more expensive litigation, is hoping for a late implementation date and a long grandfathering period so it can slowly fill the capital gap.

Bafin’s Hufeld said international regulators had withstood the “siren songs” from bank lobby groups, and warned that “there will not be a compromise at any cost”.

He added, however, that market structures of individual countries would have to be taken into account when deciding to what extent banks can use their own models for assessing risks.

While American companies use capital markets as their prime source of finance, European groups still rely mainly on bank loans. At the same time, European banks on average recover more money from bad corporate loans and mortgages than their U.S. peers - factors that new bank rules should reflect, regulators and bank executives have said.

Reporting by Arno Schuetze. Editing by Ludwig Burger.