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Analysis

Global Bank capital regime at risk as regulators tinker rules —- Can Nigeria banks meet Base111 standard in capital

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14 years ago

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By Omoh Gabriel with Agency report

The plan by international financial community to stave off future global financial crisis by ensuring adequate capitalization of banks is in serious jeopardy as regulators are tinkering with arrangement they had earlier agreed upon. Capital standards or shareholders fund designed to fortify the global financial system are already eroding as European monetary officials, beset by a debt crisis, rewrite the provisions of the regulations and U.S. rule making has stalled.

The 27 member-states of the Basel Committee on Banking Supervision had fought over the new regime, known as Basel III, for more than a year before agreeing in December to require banks to bolster capital and reduce reliance on borrowing. Now, as they put the standards into effect in their own countries, European Union lawmakers are revising definitions of capital, while the U.S. is struggling to reconcile the Basel mandates with financial reforms imposed by the Dodd-Frank Act.

According to V. Gerard Comizio, a former Treasury Department lawyer who is now a senior partner at Paul Hastings Janofsky & Walker LLP in Washington “The game on the ground has changed in Europe and the U.S.” The realists in Europe realised that their banks cannot raise the capital they’d need to comply. U.S. banks have reversed course and are more assertively fighting against it. The future of Basel III looks less certain now than it did when it was agreed to.”
Interestingly the Basel committee had revised its capital standards and outlined new rules on liquidity and leverage after the 2008 crisis exposed the vulnerability of the banking system. Credit markets froze following the collapse of Lehman Brothers Holdings Inc., sending the world economy into its first recession since World War II. Basel III was meant to create “a much stronger banking and financial system that is much more resilient to financial crises,” said Mario Draghi, who will take over as president of the European Central Bank in November was quoted by Bloomberg as saying.

But the Basel standards are not binding, so each country needs to write its own rules putting the agreed-upon principles into effect. The European Commission proposed regulations to parliament last month that would translate Basel III into law. A majority of EU governments also must endorse them. U.S. regulators led by the Federal Reserve have to come up with their own version, though they don’t need legislative approval. The proposed EU rules, submitted by financial services commissioner Michel Barnier, omitted a ratio designed to improve banks’ cash positions, deferred decision on a rule to limit borrowing, revised capital definitions and extended some compliance dates. In the U.S., regulators are stymied because the 2010 Dodd-Frank Act bars the use in banking rules of credit ratings, which Basel III relies on to determine risk.

“Implementation is a big concern in Europe and the U.S.,” said Karel Lannoo, head of the Centre for European Policy Studies in Brussels. “The EU crisis isn’t over; the U.S. isn’t safely out of its mess. If we can’t get the rules that were supposed to protect the financial system from collapse, we won’t have changed anything to help us the next time around.” While the Greek debt crisis damped enthusiasm for tightening standards last year, the Basel committee managed to develop reforms to reduce risks in the financial system, according to Lannoo and other analysts. Increased capital requirements will create bigger buffers against losses. New liquidity rules will ensure banks have enough cash to deal with panicky customers withdrawing funds.

Renewed concern this year that Greece may be unable to pay its debts, and similar worries about larger EU members Italy and Spain, have darkened Basel’s prospects. The sputtering economic recovery in the U.S. and Europe has hurt, too. The European Commission estimates that the region’s banks will have to raise about $600 billion to comply with the new capital rules. Banks say that will harm their ability to lend at a time when economies are flailing. U.S. economic growth for the first quarter was revised down to 0.4 per cent, while the second quarter’s initial figure was 1.3 per cent. In Europe, gross domestic product fell from 0.8 per cent in the first three months of the year to 0.2 per cent in the second quarter.

Both the Bloomberg Europe 500 Banks and Financial Services Index and the KBW Bank Index of U.S. bank stocks have fallen about 30 per cent this year. That wiped out more than $700 billion of market value on the two continents. The European proposal alters the definition of capital that Basel III aimed to tighten when the committee agreed not to allow anything other than common shares to count toward the top- quality bank capital regulators examine. During the 2010 negotiations, Germany sought to maintain recognition of so-called silent participations — hybrid securities that act like debt and equity at the same time — which some banks rely on for more than half their capital. While Germany lost the battle to exempt silent participations last year, the EU’s implementation proposal was written to allow the securities to be included if they fulfill certain conditions.

At Landesbank Hessen-Thueringen, a state-owned bank based in Frankfurt known as Helaba, silent participations account for more than 50 percent of the bank’s 6 billion euros ($8.6 billion) of capital. Helaba withdrew from the Europe-wide stress tests in July after regulators refused to count some of those hybrid instruments as capital. Italy fought during Basel talks last year to include deferred tax assets — future deductions from tax liabilities resulting from current losses — when calculating top-tier capital. Basel III restricted use of these assets to no more than 10 per cent of a bank’s capital. The EU’s proposal would allow unrestricted use of deferred tax assets if they comply with certain requirements. Italy modified its tax laws in February to enable the assets to meet those conditions.

Counting tax assets would raise the capital ratio at Banca Monte dei Paschi di Siena SpA, the oldest bank in the world and Italy’s third-largest, by about 1 percentage point, according to a February Mediobanca SpA report on the benefits of the tax-law change to Italian banks. Basel III also sought to put an end to the double counting of capital in insurance subsidiaries, which many European lbanks do. The proposed EU rules do not require banks to deduct investments in these subsidiaries from their capital, which will allow the double counting to continue, said analysts including Andrew Stimpson at KBW Inc. in London. That would benefit banks such as France’s Credit Agricole SA, whose insurance subsidiary accounts for 10 per cent of income.

“Each adjustment may be justified in each country’s case, but when you put them all together, there will be differences between how the EU implements Basel III and how others do,” said Tobias Moerschen, a European bank analyst at Moody’s Investors Service in New York. “And if other countries feel compelled to go down the same road, you’ll end up with a less level playing field, and that is negative.” U.S. banks lobbying their regulators about the implementation of Basel rules can use the EU proposal as ammunition, Moerschen said. In March, Jamie Dimon, 55, chairman and chief executive officer of New York-based JPMorgan Chase & Co., said at a Chamber of Commerce event in Washington that it would disadvantage U.S. banks if European lenders were allowed to calculate capital ratios differently.

Josef Ackermann, the 63-year-old CEO of Frankfurt-based Deutsche Bank AG, fired a similar warning shot in a speech in New Delhi the same month: Separate regulatory approaches “would have severe consequences for financial markets and for the global economy,” he said. Ackerman and other European bankers have complained that the U.S. never fully implemented Basel II, which was approved by the Basel committee in 2004. When community banks in the U.S. realized the regulations would give the largest international lenders the ability to lower their capital ratios, they lobbied lawmakers to prevent adoption of the rules. U.S. regulators, under pressure from Congress, delayed implementation.
Now the U.S. faces obstacles implementing Basel III because of conflicts with Dodd-Frank. The law’s ban on credit ratings was the result of criticism that Moody’s and other rating firms gave mortgage-related securities investment-grade ratings they didn’t deserve. That helped inflate a U.S. housing bubble as trillions of dollars of home loans were packaged into bonds and marketed to investors as safe. While Basel III relies less on ratings than previous regimes, it still uses them to calculate risk. An international debate about what might replace external ratings has been as inconclusive as the one in the U.S.

Officials from the Fed and the Office of the Comptroller of the Currency told a congressional oversight panel last month that they have received numerous proposals and are still trying to come up with a formula that doesn’t rely on ratings firms. “If the U.S. agencies are unable to implement the Basel committee changes that reference credit ratings, other jurisdictions may infer a lessening of the U.S. commitment to the Basel framework,” David Wilson, the OCC’s chief national bank examiner, told the panel.

Bank regulators at the Fed and other U.S. agencies have been busy implementing 141 rules mandated by Dodd-Frank, according to a tally by New York-based law firm Davis Polk & Wardwell LLP. As of July 22, regulators had completed 20, published proposals for an additional 24, missed 19 deadlines and had 78 to write, according to the Davis Polk report. While Basel has taken a back seat to Dodd-Frank, U.S. regulators will be able to work around the ratings restrictions and propose rules to implement Basel III this year, according to two people involved in the discussions who asked not to be identified because they weren’t authorized to speak.

U.S. regulators may be tempted to skip Basel altogether, said Karen Shaw Petrou, co-founder of Federal Financial Analytics Inc., an advisory firm in Washington. “Dodd-Frank already takes care of the most important elements of the financial crisis, so why should we try to incorporate a set of rules into which big holes are already being carved?” Petrou said. One hole may be opening in Basel III’s global leverage ratio. Unlike the capital ratio, which weights assets based on riskiness, the leverage standard compares capital with total assets without taking risk into account. The rule aims to limit how big a bank can get by capping how much it can borrow in relation to its common equity.
European banks had opposed a leverage ratio, arguing that different accounting regimes make the balance sheets of U.S. lenders smaller than those of their foreign counterparts and that restricting leverage would unfairly punish non-U.S. firms. While U.S. banks are subject to a leverage cap, Generally Accepted Accounting Principles allow them to keep more assets off their balance sheets and to net out derivatives more than International Financial Reporting Standards do.

The Basel committee addressed the issue by devising a mechanism for adding total assets that puts aside different accounting standards. Still, the EU proposal doesn’t commit to implementing the ratio by 2018 as required by Basel III. Instead, it asks for a five-year period to review the rule’s effectiveness in curbing risk before deciding whether to make it binding. The EU proposal also softens Basel III’s liquidity standards that would require banks to hold enough cash or easily sellable assets to meet short- and long-term liabilities. It omits the rule covering debt coming due in the next 12 months and modifies the one for 30-day obligations to allow counting covered bonds as liquid assets. Denmark, Sweden and Spain lobbied for the modification because their banks have sizeable holdings of those bonds, which are securities backed by the cash flow from a pool of mortgage loans.

“The EU document is notable for its omissions of some key Basel concepts,” said Stimpson, the KBW analyst. “There are also tweaks in the capital definitions. I hope these don’t give Americans the excuse to say, ‘We’re not implementing Basel III.’” Barnier, the financial services commissioner, and other EU officials have said the changes they incorporated into the implementation proposal are part of the natural process of translating global rules into local practice. “We are totally faithful to Basel’s spirit, letter and level of ambition,” Barnier said in Brussels last month.

Different interpretations by national regulators emerged during previous incarnations of the accords, known as Basel I and II. Conflicts over Basel III could undermine the new regime if more countries follow Europe’s example and come up with their own versions of the rules, said Vishal Vedi, a London-based partner at Deloitte LLP’s financial-advisory practice. “There’s concern that divergences between the EU and the U.S. on Basel III implementation will be bigger this time,” Vedi said. “There’s a line when the spirit of Basel III is tossed aside. I don’t think we’re there yet.”

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Analysis

As EU plans Russian Gas exit, Ministers to convene in Paris to chart Africa’s export potential

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2 weeks ago

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November 19, 2025

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In the wake of seismic shifts in the European energy landscape, the Invest in African Energy (IAE) 2026 Forum in Paris will host a Ministerial Dialogue on “Unlocking Africa’s Gas Supply for Global Energy Security.” This strategic session will examine how Africa can turn its untapped gas reserves into a reliable and sustainable source of supply. With Europe seeking to diversify away from Russian gas, the dialogue highlights both the continent’s growing role in global energy markets and the opportunity for African producers to attract long-term investment. Recent developments underscore the urgency of Africa’s role in global energy security. Last month, EU countries agreed to phase out their remaining Russian gas imports, with existing contracts benefiting from a transition period: short-term contracts can continue until June 2026, while long-term contracts will run until January 2028. In parallel, the European Commission is pushing to end Russian LNG imports by January 2027 under a broader sanctions package aimed at limiting Moscow’s energy revenues.

Africa’s role in this rebalancing is already gaining momentum. Algeria recently renewed its gas supply agreement with ČEZ Group, ensuring continued deliveries to the Czech Republic. In Libya, the National Oil Corporation (NOC) has approved new compressors at the Bahr Essalam field to boost output and reinforce flows via the Greenstream pipeline to Italy. These developments complement the Structures A&E offshore project – led by Eni and the NOC – which is expected to bring two platforms online by 2026 and produce up to 750 million cubic feet per day, supporting both domestic and European demand. West Africa is pursuing ambitious export routes as well.

Nigeria, Algeria and Niger have revived the Trans-Saharan Gas Pipeline (TSGP), with engineering firm Penspen commissioned earlier this year to revalidate its feasibility. The proposed $25 billion Nigeria–Morocco pipeline is also advancing as a long-term corridor linking West African gas to European markets. Meanwhile, the Greater Tortue Ahmeyim (GTA) project off Mauritania and Senegal came online earlier this year, with its first phase targeting 2.3 million tons of LNG annually. In June, the project delivered its third cargo to Belgium’s Zeebrugge terminal, marking the first African LNG shipment from GTA to Europe. Together, these milestones underscore a strategic convergence: African producers are accelerating efforts to scale up exports just as Europe intensifies its search for reliable alternatives to Russian gas.

Yet, as the ministerial session will explore, unlocking Africa’s gas supply demands sustained investment, regulatory alignment, environmental management and community engagement. For Europe, diversification of supply is a strategic necessity; for African producers, it is an opportunity to accelerate development, build infrastructure and secure long-term capital. At IAE 2026, these shifts will be examined by the officials and stakeholders driving them. The Ministerial Dialogue brings African energy leaders together with European policymakers, industry players and investors in a setting that supports practical, solution-focused discussion on supply, export strategies and future cooperation. As Europe adapts its gas strategy and African producers progress major projects, the Forum provides a direct platform for ministers to outline priorities and for investors to engage with key decision-makers.

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Analysis

Authorities must respond as digital tools used by organized criminals accelerate financial crime—IMF

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3 weeks ago

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November 18, 2025

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International Monetary Fund IMF, has said that criminals are outpacing enforcement by adapting ever faster ways to carry out digital fraud. The INF in a Blog post said the Department of Justice in June announced the largest-ever US crypto seizure: $225 million from crypto scams known as pig butchering, in which organized criminals, often across borders, use advanced technology and social engineering such as romance or investment schemes to manipulate victims. This typically involves using AI-generated profiles, encrypted messaging, and obscured blockchain transactions to hide and move stolen funds. It was a big win. Federal agents collaborated across jurisdictions and used blockchain analysis and machine learning to track thousands of wallets used to scam more than 400 victims. Yet it was also a rare victory that underscored how authorities often must play catch-up in a fast-changing digital world. And the scammers are still out there. They pick the best tools for their schemes, from laundering money through crypto and AI-enabled impersonation to producing deepfake content, encrypted apps, and decentralized exchanges. Authorities confronting anonymous, borderless threats are held back by jurisdiction, process, and legacy systems.
Annual illicit crypto activity growth has averaged about 25 percent in recent years and may have surpassed $51 billion last year, according to Chainalysis, a New York–based blockchain analysis firm specializing in helping criminal investigators trace transactions. Bad actors still depend on cash and traditional finance, and money laundering specifically relies on banks, informal money changers, and cash couriers. But the old ways are being reinforced or supercharged by technologies to thwart detection and disruption.
Encrypted messaging apps help cartels coordinate cross-border transactions. Stablecoins and lightly regulated virtual asset platforms can hide bribes and embezzled funds. Cybercriminals use AI-generated identities and bots to deceive banks and evade outdated controls. Tracking proceeds generated by organized crime is nearly impossible for underresourced agencies. AI lowers barriers to entry. Fraudsters with voice-cloning and fake-document generators bypass the verification protocols many banks and regulators still use. Their innovation is growing as compliance systems lag. Governments recognize the threats, but responses are fragmented and uneven—including in regulation of crypto exchanges. And there are delays implementing the Financial Action Task Force’s (FATF’s) “travel rule” to better identify those sending and receiving money across borders, which most digital proceeds cross.
Meanwhile, international financial flows are increasingly complicated by instant transfers on decentralized platforms and anonymity-enhancing tools. Most payments still go through multiple intermediaries, often layering cross-border transactions through antiquated correspondent banks that obscure and delay transactions while raising costs. This helps criminals exploit oversight gaps, jurisdictional coordination, and technological capacity to operate across borders, often undetected.
Regulators and fintechs should be partners, and sustained multilateral engagement should foster fast, cheap, transparent, and traceable cross-border payments. There’s a parallel narrative. Criminals exploit innovation for secrecy and speed while companies and governments test coordination to reduce vulnerabilities and modernize cross-border infrastructure. At the same time, technological implications remain underexplored with respect to anti–money laundering and countering the financing of terrorism, or AML/CFT. Singapore’s and Thailand’s linked fast payment systems, for example, enable real-time retail transfers using mobile numbers; Indonesia and Malaysia have connected QR codes for cross-border payments. Such innovations offer efficiency and inclusion yet raise new issues regarding identity verification, transaction monitoring, and regulatory coordination.
In India, the Unified payments interface enables seamless transfers across apps and platforms, highlighting the power of interoperable design. More than 18 billion monthly transactions, many across competing platforms, show how openness and standardization drive scale and inclusion. Digital payments in India grew faster when interoperability improved, especially in fragmented markets where switching was costly, IMF research shows These regional innovations and global initiatives reflect a growing understanding that fighting crime and fostering inclusion are interlinked priorities—especially as criminals speed ahead. The FATF echoed this concern, urging countries to design AML/CFT controls that support inclusion and innovation. Moreover, an FATF June recommendation marks a major advance: Requiring originator and beneficiary information for cross-border wire transfers—including those involving virtual assets—will enhance traceability across the fast-evolving digital financial ecosystem.
Efforts like these are important examples of how technology enables criminal advantage, but technology must also be part of the regulatory response.
Modernizing cross-border payment systems and reducing unintended AML/CFT barriers increasingly means focusing on transparency, interoperability, and risk-based regulation. The IMF’s work on “safe payment corridors” supports this by helping countries build trusted, secure channels for legitimate financial flows without undermining new technology. A pilot with Samoa —where de-risking has disrupted remittances—showed how targeted safeguards and collaboration with regulated providers can preserve access while maintaining financial integrity without disrupting the use of new payment platforms.
Several countries, with IMF guidance, are investing in machine learning to detect anomalies in cross-border financial flows, and others are tightening regulation of virtual asset service providers. Governments are investing in their own capacity to trace crypto transfers, and blockchain analytics firms are often employed to do that. IMF analysis of cross-border flows and the updated FATF rules are mutually reinforcing. If implemented cohesively, they can help digital efficiency coexist with financial integrity. For that to happen, legal frameworks must adapt to enable timely access to digital evidence while preserving due process. Supervisory models need to evolve to oversee both banks and nonbank financial institutions offering cross-border services. Regulators and fintechs should be partners, and sustained multilateral engagement should foster fast, cheap, transparent, and traceable cross-border payments—anchored interoperable standards that also respect privacy.
Governments must keep up. That means investing in regulatory technology, such as AI-powered transaction monitoring and blockchain analysis, and giving agencies tools and expertise to detect complex crypto schemes and synthetic identity fraud. Institutions must keep pace with criminals by hiring and retaining expert data scientists and financial crime specialists. Virtual assets must be brought under AML/CFT regulation, public-private partnerships should codevelop tools to spot emerging risks, and global standards from the FATF and the Financial Stability Board must be backed by national investments in effective AML/CFT frameworks.
Consistent and coordinated implementation is important. Fragmented efforts leave openings for criminals. Their growing technological advantage over governments threatens to undermine financial integrity, destabilize economies, weaken already fragile institutions, and erode public trust in systems meant to ensure safety and fairness. As crime rings adopt and adapt emerging technologies to outpace enforcement, the cost is not only fiscal—it is structural and systemic. Governments can’t wait. The criminals won’t.

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Analysis

Multilateral development banks reaffirm commitment to climate finance, pledge innovative funding for adaptation

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3 weeks ago

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November 13, 2025

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Multilateral development banks have reaffirmed their commitment to climate finance, pledging to scale up innovative funding to boost climate adaptation and resilience. “Financing climate resilience is not a cost, but an investment.” This was the key message from senior MDB officials at the end of a side event organised by the Climate Investment Funds (CIF) on the opening day of the 30th United Nations Climate Conference (COP30) in Belém, Brazil.

The conference runs from 10 to 21 November. During a panel discussion titled “Accelerating large-scale climate change adaptation,” MDB representatives, including the African Development Bank Group, outlined how their institutions are fulfilling Paris Agreement commitments by mobilising substantial and innovative resources for climate adaptation and mitigation. Ilan Goldfajn, President of the Inter-American Development Bank Group, emphasised that “resilience is more than a concern for the future: it is also essential for development today.” He announced that MDBs are tripling their financing for resilience over the next decade, targeting $42 billion by 2030.

“At the Inter-American Development Bank, we are turning preparedness into protection and resilience into opportunity,” Goldfajn added. Tanja Faller, Director of Technical Evaluation and Monitoring at the Council of Europe Development Bank, stressed that climate change “not only creates new threats, but also amplifies existing inequalities. The most socially vulnerable people are the hardest hit and the last to recover. This is how a climate crisis also becomes a social crisis.” Representatives from the Islamic Development Bank, the Asian Infrastructure Investment Bank, the Asian Development Bank, the World Bank Group, the European Bank for Reconstruction and Development,  the European Investment Bank, the New Development Bank and IDB Invest (the private sector arm of the Inter-American Development Bank Group) also shared concrete examples of successful adaptation investments and strategies for mobilising new resources.

Kevin Kariuki, Vice President of the African Development Bank Group in charge of Power, Energy, Climate and Green Growth, presented the Bank’s leadership in advancing climate adaptation and mitigation. “At the African Development Bank, we understand the priorities of our countries: adaptation and mitigation are at the heart of our climate interventions.” He highlighted the creation of the Climate Action Window, a new financing mechanism under the African Development Fund, the Bank Group’s concessional window for low-income countries.

“The African Development Bank is the only multilateral development bank with a portfolio of adaptation projects ready for investment through the Climate Action Window,” Kariuki noted, adding that Germany, the United Kingdom and Switzerland are among key co-financing partners. Kariuki also showcased the Bank’s YouthADAPT programme, which has invested $5.4 million in 41 youth-led enterprises across 20 African countries, generating more than 10,000 jobs — 61 percent of which are led by women, and mobilising an additional $7 million in private and donor funding.

Representatives from Zambia, Mozambique and Jamaica also shared local perspectives on the financing needs of communities most exposed to climate risk. The panel followed the official opening of COP30, marked by a passionate appeal from Brazilian President Luiz Inácio Lula da Silva for greater climate investment to prevent a “tragedy for humanity.”

“Without the Paris Agreement, we would see a 4–5°C increase in global temperatures,” Lula warned. “Our call to action is based on three pillars: honouring commitments; accelerating public action with a roadmap enabling humanity to move away from fossil fuels and deforestation; and placing humanity at the heart of the climate action programme: thousands of people are living in poverty and deprivation as a result of climate change. The climate emergency is a crisis of inequality,” he continued.

“We must build a future that is not doomed to tragedy. We must ensure that we live in a world where we can still dream.” Outgoing COP President Mukhtar Babayevn, Azerbaijan’s Minister of Ecology, urged developed nations to fulfil their promises made at the Baku Conference, including commitments to mobilise $300 billion in climate finance. He called for stronger political will and multilateral cooperation, before handing over the COP presidency to Brazilian diplomat André Corrêa do Lago, who now leads the negotiations.

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