MNI INSIGHT: Germany Blocks Bank Push To Relax Leverage Ratio

--Banks Argue Easier Leverage Ratio Needed To Meet Surge In Bond Sales

--Germany, Netherlands Oppose

By David Thomas

     BRUSSELS(MNI) - EU countries including Germany and the Netherlands are

opposing a push by investment banks for leverage ratio rules to be eased in

order to boost their capacity to absorb an expected EUR815 billion increase in

government bond issuance this year, MNI understands.

     Wholesale bank lobby group AFME has argued for the leverage ratio to exempt

not just high-quality government bonds but also the government-guaranteed loans

which have been central to the EU's economic rescue efforts.

     The Commission has accepted the need for some new temporary exemptions to

the leverage rate, such as excluding central bank deposits from the calculation,

but bank lobbyists say they face an uphill battle to win additional changes.

While they are strongly supported by Italy, Spain, Portugal and Greece among

others, Germany, The Netherlands and some Scandinavian countries remain robustly

opposed.

     --SURGE IN ISSUANCE

     Eurozone bond issuance is expected to increase to EUR1 trillion this year

from an expected EUR185 billion before the onset of the Covid-19 crisis.

     The leverage ratio will only become binding on banks in mid-2021 as part of

the Commission's CRR2 regulation but banks say it already acts as a constraint

on lending.

     "Banks that are primary dealers in government securities will need to be

able to accommodate these increased volumes. This is true despite ECB purchase

programmes as these are carried out on the secondary market, thus leaving

significant pressure on primary dealers' books," AFME stated in a position paper

for regulators.

     "Channelling the government support to end-users through the banking system

would remain curtailed, if provisions are not provided to exempt government

bonds and the state guarantees from the LR measure," it said.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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