ECB objects to EU's plan to water down banking rules

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The Frankfurt skyline is pictured, as the spread of the coronavirus disease (COVID-19) continues, in Frankfurt, Germany, January 5, 2022. REUTERS/Kai Pfaffenbach

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FRANKFURT, March 25 (Reuters) - European Union lawmakers should not grant banks exceptions from new global rules designed to avoid a new financial crisis, highlighting risks relating to housing and derivatives, the European Central Bank said on Friday.

The ECB, which is the EU's top banking watchdog, welcomed the European Commission's proposal to implement the Basel III rules but it objected to some "deviations" from the letter of the globally agreed standards.

Specifically, it said banks shouldn't be granted leeway in how they account for their exposures to residential real estate, derivatives and unrated companies when they calculate their minimum capital requirement, known as 'output floor'.

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"These deviations are not justified," the ECB said in slides accompanying a legal opinion. "They should remain temporary, if kept at all."

ECB opinions are not binding but often influence the legislative process, which is led by the Commission, EU Parliament and member states.

The Frankfurt-based central bank called for the output floor to be applied at the EU, rather than national, level and objected to allowing banks to disregard historical losses when calculating their capital needs.

It also urged the Commission to stick to a timeline for implementing rules relating to market risk by 2025.

ECB opinions are fed back to EU governments which then refine proposals that eventually go into a so called 'trialogue' with the Commission, Parliament and EU states before they are finalised.

This can sometime take years. Basell III rules were finalised in December 2017.

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Reporting By Francesco Canepa

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