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Top international central bankers and regulators have struck a long-awaited deal on bank capital rules that Mario Draghi hailed as the final step of post-financial crisis reforms and which resolves a transatlantic rift on the treatment of the industry. The global reform package, unveiled on Thursday, will hit European banks the hardest.

They will have to increase their capital due to, among other factors, limits on how much the biggest banks can diverge from regulators’ risk calculations for assets such as mortgages. While formally the package is a tightening up of the Basel III rules on bank capital, bankers have dubbed it Basel IV because of what they see as its stringent requirements.

“Today’s endorsement of the Basel III reforms represents a major milestone that will make the capital framework more robust and improve confidence in banking systems,” said Mr Draghi, who in addition to heading the European Central Bank chairs the Basel Committee on Banking Supervision, which sets rules for the world’s largest banks and whose prominence grew during the financial crisis.

Mr Draghi added that the reform package — much of which will only take full effect in 2027, some two decades after the crisis began — “now completes the global reform of the regulatory framework which began following the onset of the financial crisis.” The agreement comes despite expectations that US president Donald Trump’s deregulatory agenda might prevent or slow down further agreement at the Basel committee, The reforms will mean an average increase in minimum capital of 12.9 per cent for EU banks according to official estimates on Thursday by the European Banking Authority, based on 2015 balance sheets.

The bloc’s 12 largest banks will see a spike of 15.2 per cent, the EBA forecast, explaining that the limit on models was the biggest factor in the increase. France and Germany opposed the move until last month because they feared it would disproportionately hit their banks.

The models for calculating the risk of mortgage assets — and consequent capital requirements — are more important for European banks than for their US counterparts. This is because European banks hold more mortgages on their balance sheets, while in the US such loans are more frequently offloaded through securitisation. The German central bank described Thursday’s deal as one “stakeholders can live with” while François Villeroy de Galhau, governor of the Banque de France, said he was “ready to support” it.

Tom Huertas, head of regulation at EY, questioned whether the agreement would be implemented: “Legislatures in both the US and the EU are likely to adjust the agreement reached in Basel to suit local priorities.” As part of the quid pro quo for the deal, banks will have more time to adopt previously agreed rules on how they calculate capital for their trading businesses. In a transatlantic spat that had threatened to derail the reforms, France and Germany previously complained that the US had not committed to fully implementing these rules, which have now been delayed from 2019 to 2022.

Thursday’s agreement resolved a two-year long disagreement over a contentious “output floor” that would limit banks’ ability to use their own internal models to assess risk. The committee agreed that banks’ risk weighting of an asset should be at least 72.5 per cent of regulators’ estimates generated through so-called standardised models. While US regulators favoured such floors, their European counterparts expressed concerns the new rules would unduly disadvantage their lenders, which are suffering from profit stagnation and legacy bad loans.

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