FOLKETINGET
Commissioner for an Economy that Works for People
Mr. Valdis Dom brovskis
European Commission
Rue de la Loi I Wetstraat 200
1049 Brussels
Belgium
Implementation of the final Basel III
reform and the output floor in the EU
Dear Commissioner Dom brovskis,
The Committees on European Affairs and Business of the Danish Parliament
truly weicome the European Commission’s hearing about the implementation
of the final set of Basel Ill reforms in the EU, which will feed into a formal
Commission proposal expected in June 2020.
The Committees are very concerned that the Basel Committee’s proposed
output floor could result in a decrease in the risk sensitivity in the capital re-
quirements of financial institutions whereby the credit institutions will have in
centive to increase risk taking as they can take on more risky exposures with-
out corresponding increases in capital requirements.
.
19. december 2019
J.nr,: 19-000870-5
Martin Jørgensen
EU Advisor
Martinjorgensenft.dk
3337 3622
Parliament of Denmark
European Affairs
Committee and The
Business Committee
The output floor introduced by the Basel III standards intends to ensure that
institutions’ risk-weighted assets do not fall below 72.5% of the risk-weighted
assets derived under the standardised approaches.
The proposed output floor will affect the risk-based model for capital require
ments for banks operating in low risk markets. The introduction of an output
floor will increase capital requirement mainly in the corporate exposure das
ses and for exposutes secured by real estate.
Regard ing Ioans secured by real estate, we are generally concerned, that the
risk weights of the standardised model do flot reflect the actual risk on these
loans in Denmark. As a consequence banks with an internal ratings-based
model operating under well-functioning mortgage systems will be severely hit
by the proposed capital floor.
The European Banking Authority (EBA) has estimated an increase in the cur
rent minimum capital requirement (MRC) by 23.6% on average equivalent to
an aggregate shortfall in total capital of EUR 124.8 billion.
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