MEPs check impact of bank accord on growth

Date: 18/04/02

By Peter Chapman

MEPS are set to study the impact of new rules on bank capital adequacy to make sure they don't hurt small firms vital to boosting European growth.

The move by the assembly's economic and monetary affairs committee follows concerns that a draft accord being finalised by a team of international bankers would force lenders to set aside far more reserves for loans to small firms than to bigger firms with a better credit rating.

Rapporteur German Christian Democrat Alexander Radwan said MEPs feared SMEs and their bankers would suffer.

'Our goal is to let the G10 [the member countries of the Basel Committee] know what is important for the European Parliament before it makes its final decision.'

The Basel-based Bank for International Settlement (BIS), which oversees the rule changes, is expected to unveil its final proposal after an autumn 'road test' of the new rules within the banking sector.

A senior director at the BIS this week insisted SMEs had little to fear from the new accord, which replaces rules agreed over a decade ago - before the invention of more sophisticated risk measurement systems and insurance products designed to offset banks' exposure to bad debts.

Most of the SME concerns - based on a January 2001 draft - had now been taken care of, said the expert.

He added: 'It would change slightly, but our view is it would change far less than the media has made out.'

Under the current Basel I accord, banks must set aside 8 of all outstanding loans in case of default - regardless of the borrower.

'That means if a bank lends to Shell Oil or DaimlerChrysler it would have the same capital charge as if it lent to you and me or a little hairdresser salon,' he said.

In the new system, this 8 requirement would be adjusted upwards or downwards depending on an assigned 'risk weight' for a loan.

That means banks would have to set aside less to cover risks of default by countries such as the US or Germany and 'AAA' rated corporations.

They would have to set aside more for loans to riskier clients - such as SMEs.

But the BIS insider said a controversial part of the earlier proposals, that would have made banks set aside up to 50 of the outstanding debt for the riskiest loans, had been modified to at most 24.

MEPs are to study the impact of new rules on bank capital adequacy to make sure they don't hurt small firms vital to boosting European growth.