New global capital rules won’t force the hand of Irish banks, says Mairead McGuinness

Mairead McGuinness, EU Financial Services Commissioner. Photo: Alexandros Michailidis/Bloomberg

Sarah Collins

October 28 2021 02:30 AM

New global capital rules will have a negligible impact on Irish banks, due to the large cash buffers built up since the 2008 financial crisis.

“If the banks already have a higher capital requirement, that should be taken account of,” said EU financial services chief Mairead McGuinness, as she set out to close the remaining loopholes in the post-financial crisis rulebook.

Analysts say the so-called Basel III rules, which the European Commission wants to phase in from 2025, will largely affect European lenders with large mortgage books.

In three draft laws published on Wednesday, the EU also proposed several opt-outs that it said would not hamper bank profitability.

Banks will face a minimum floor on the capital they must hold against future crises, limiting their use of internal calculation models.

There will be extra oversight of climate risk, fintechs and foreign branches, alongside opt-outs for unrated corporates, low-risk residential mortgages and lending for ‘strategic’ industry and infrastructure.

EU banks will not have to raise more than 9pc in extra capital by 2030, when the rules come into full effect, the Commission said.

The European Banking Authority had previously estimated a 15.4pc increase, costing banks €9.4bn.

The rules will have a “small but not significant” effect on Irish banks, said Brian Hayes of the Banking and Payments Federation Ireland (BPFI).

“We’ve just gone through a real life bank stress test, not an academic test, and the Irish banking sector has held up. If anything, the additional capital requirements will hit other European banks that have a smaller capital base,” he said.

Previous BPFI data showed Irish banks hold around three times the amount of capital held by their EU counterparts.

Diarmaid Sheridan, a research analyst at Davy Stockbrokers, said the Basel rules will be “entirely manageable" for Irish banks and that the legacy of the last crisis is beginning to wash out of their balance sheets.

“We should see, and we have begun to see this, that capital requirements in Ireland fall as older mortgages pay down and particularly as banks sell non-performing loans.”

The EU is the first jurisdiction to implement the rules, which took the Basel-based Bank for International Settlements (BIS) almost a decade to draw up. They will still need the seal of approval of MEPs and finance ministers.

France and Germany had pressed for rules to be watered down, a move that Ireland’s Central Bank governor Gabriel Makhlouf and several EU counterparts opposed.