London Daily

Focus on the big picture.
Thursday, Sep 11, 2025

EU can’t go it alone on global banking agreement, top regulator warns

EU can’t go it alone on global banking agreement, top regulator warns

Banks risk becoming ‘less resilient’ if they get too many carve-outs from Basel III reforms, says Neil Esho.

The EU will only hurt itself and weaken its banks by departing from a global agreement on capital reserves struck after the last financial crisis, according to a top international regulator.

Neil Esho, secretary general of the Basel Committee on Banking Supervision, is warning that European banks will be less resilient to shocks if the EU tries to soften the capital hike by creating deviations from the final so-called Basel III reforms. These reforms mark the last set of measures following the 2008 financial crisis that are intended to shore up the banking sector and force lenders to hold better-quality and higher reserves to swallow losses.

"Many of [the deviations being discussed] go in the way of making the system weaker," he told POLITICO in a recent interview. "So you're ending up with a banking system that is less resilient. And when shocks occur, there's less capacity to absorb those shocks and to continue lending."

Such moves would also make the European banking system more dependent on governments and central banks for support at a time when they may not have the firepower to weather a crisis, cautioned the Australian, whose panel sets worldwide standards for bank capital and is a global forum for central bankers and supervisors.

"That support is less and less likely, given what's happened after COVID, what's happened after the war in Ukraine, the big increase in debt," Esho said.

"I don't think governments have the capacity to step in so much. Monetary policy is tightening. So, in this environment, you want your banking sector to be as resilient as possible," he added.

His comments come as the EU debates how to bring in the final Basel III reforms across the bloc. Key questions include whether to create temporary carve-outs for low-risk mortgages and loans to companies without a credit rating to limit an otherwise sizeable capital blow for lenders.

EU capitals and lawmakers are still debating if those transitional regimes should stay in place or even be made permanent fixtures of the EU’s regime.

A number of other revisions are also on the table in both EU capitals and the European Parliament — for instance, lowering the capital charges for securitizations or long-term shareholdings foreseen under the international agreement.

The banking industry, backed by countries like France and Denmark, has been lobbying for extra flexibility for EU banks — warning that a large capital hike could dent the economy. A compromise deal that includes the transitional regimes has gained broad support among EU capitals.

Meanwhile, in Parliament, the lawmaker leading work on the legislation is taking a stricter approach and wants to bring the reforms in faithfully. But he faces pushback from other MEPs — with the split seemingly more along national lines than between political groups.


'Death by 1,000 cuts'


Esho, who took the helm of the Basel Committee in February, said he had not heard "any good reasons" to make changes to the international agreement. He would be "concerned" if the transitional regimes become permanent as they could be “quite material” deviations, he added.

A central flashpoint is the output floor, which refers to the limits on banks’ use of internal models to lower their capital charges. Basel III seeks to standardize how banks measure risks on their balance sheets. Banks are pushing for some carve-outs, but too many exceptions will creates a slippery slope, he warned.

"It becomes like death by 1,000 cuts," he said. "You start nipping away at it, and then all of a sudden, you start making all these other changes, and the whole thing becomes ineffective."

As Esho sees it, the EU’s efforts to limit the hit from the output floor won’t be copied by other jurisdictions, leaving the bloc as an outlier.

“The jurisdictions that deviate, they'll be the ones to stand out,” he said.

Esho also questioned the logic of considering the transitional regimes to be “European specificities” that take account of the unique characteristics of the EU market. Many small businesses worldwide don't have credit ratings, he pointed out.

These firms are "an important part of employment in economies," he said. "But they're also relatively risky. So, for banks lending to small- and medium-sized enterprises, they need to be well-capitalized. And that applies everywhere. Most SMEs are not rated. I don't think it's a European-specific issue."
Climate charges

The Basel Committee is also taking a cautious approach on how to incorporate climate change into its framework.

Some EU lawmakers have suggested hitting banks with one-for-one capital charges for any new lending for fossil fuel exploration or extraction in amendments to the Basel legislation. (That highest-possible capital requirement is on the table at the Basel Committee for risky crypto holdings.)

But Esho indicated there won't be any imminent steps without more certainty on how global warming will translate into losses on banks’ books. Otherwise, there's a risk of "diverting capital in the wrong direction," he said.

“If you're going to come up with a capital regulation, you need a degree of certainty as to how this risk would materialize in terms of losses for a financial institution, which would then drive capital charges,” he said. “That’s still very much a work in progress for us.”

Instead, he pointed to supervision and stress-testing — where the committee has already made recommendations — as one way to get a clearer picture of how climate change may lead to losses on banks' books.

Yet Esho acknowledged the committee can't hold off for years as the effects of climate change become more visible, notably with a summer of droughts and record temperatures in Europe.

"We don't have years and years to sit on this and wait for a perfect estimate," he admitted. "But at the same time, you want to be reasonably confident that what you're putting in place is moving in the right direction."

Newsletter

Related Articles

0:00
0:00
Close
The British legal mafia hit back: Banksy mural of judge beating protester is scrubbed from London court
Surpassing Musk: Larry Ellison becomes the richest man in the world
Embarrassment for Starmer: He fired the ambassador photographed on Epstein’s 'pedophile island'
Manhunt after 'skilled sniper' shot Charlie Kirk. Footage: Suspect running on rooftop during panic
Effective Protest Results: Nepal’s Prime Minister Resigns as Youth-Led Unrest Shakes the Nation
Qatari prime minister says Netanyahu ‘killed any hope’ for Israeli hostages
King Charles and Prince Harry Share First In-Person Moment in 19 Months
Starmer Establishes Economic ‘Budget Board’ to Centralise Policy and Rebuild Business Trust
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Brazilian police say ex-President Bolsonaro had planned to flee to Argentina seeking asylum
Trinidad Leader Applauds U.S. Naval Strike and Advocates Forceful Action Against Traffickers
Kim Jong Un Oversees Final Test of New High-Thrust Solid-Fuel Rocket Engine
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Supreme Court temporarily allows Trump to pause billions in foreign aid
Charlie Sheen says his father, Martin Sheen, turned him in to the police: 'The greatest betrayal possible'
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
Pig Heads Left Outside Multiple Paris Mosques in Outrage-Inducing Acts
Nvidia’s ‘Wow’ Factor Is Fading. The AI chip giant used to beat Wall Street expectations for earnings by a substantial margin. That trajectory is coming down to earth.
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
On the Anniversary of Queen Elizabeth’s Death: Prince Harry Returns to Britain
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Murdoch Family Finalises $3.3 Billion Succession Pact, Ensuring Eldest Son’s Leadership
Big Oil Slashes Jobs and Investments Amid Prolonged Low Crude Prices
Court Staff Cover Up Banksy Image of Judge Beating a Protester
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
Elon Musk Poised to Become First Trillionaire Under Ambitious Tesla Pay Plan
France, at an Impasse, Heads Toward Another Government Collapse
Burning the Minister’s House Helped Protesters to Win Justice: Prabowo Fires Finance Minister in Wake of Indonesia Protests
Brazil Braces for Fallout from Bolsonaro Trial by corrupted judge
The Country That Got Too Rich? Public Spending Dominates Norway Election
Nearly 40 Years Later: Nike Changes the Legendary Slogan Just Do It
Generations Born After 1939 Unlikely to Reach Age One Hundred, New Study Finds
End to a four-year manhunt in New Zealand: the father who abducted his children to the forests was killed, the three siblings were found
Germany Suspends Debt Rules, Funnels €500 Billion Toward Military and Proxy War Strategy
EU Prepares for War
BMW Eyes Growth in China with New All‑Electric Neue Klasse Lineup
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
US Justice Department Launches Criminal Mortgage-Fraud Probe into Federal Reserve Governor Lisa Cook
Escalating Drug Trafficking and Violence in Latin America: A Growing Crisis
US and Taiwanese Defence Officials Held Secret Talks in Alaska
Report: Secret SEAL Team 6 Mission in North Korea Ordered by Trump in 2019 Ended in Failure
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Florida Murder Case: The Adelson Family, the Killing of Dan Markel, and the Trial of Donna Adelson
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
×