Germany will not agree to global supervisors' proposals to beef up banking capital and liquidity until they take into account the needs of its public banking sector, officials said on Tuesday. But officials and analysts said it was wrong to conclude from Germany's hesitancy over bank stress tests and Basel III supervisory talks that Germany was now balking at tighter global regulation, after having led the charge until recently. Germany took issue on Monday with the Basel Committee's definition of what qualifies as capital held by banks in its plan to guard against a repeat of the worst global financial crisis since the Great Depression. The committee plans to scale back many proposals made in a draft last December, signalling concessions in the face of lobbying by banks and governments. But German regulators still balked at supporting it. “We have misgivings about decisions by the Basel Committee,” Bundesbank spokeswoman Madleen Petschmann said on Tuesday. One person involved in the deliberations said regulators from Germany were cold to the proposal throughout negotiations over the so-called Basel III package, designed to beef up bank capital and liquidity. Germany will withhold its decision on whether to give its support until figures for higher capital and phase-in timetables are added in September. An official in Berlin said the current proposal was out of step with the nuances of financing for small and medium-sized firms that are the backbone of Europe's largest economy. “We have a very specific problem in Germany which no other country has: our savings banks and cooperative banks,” the German government official said, declining to be named. “They finance the Mittelstand, which does not have access to capital markets,” the official added, in a reference to small and medium-sized enterprises. Germany's savings and cooperative banks rely on deposits but have no real equity. The Basel committee defines core capital as only equity and retained earnings, but does not take into account other capital contributions that banks rely.
