The cost of borrowing for publicly-owned organisations such as schools, hospitals, care homes and housing corporations is liable to rise considerably in the coming months, the Financieele Dagblad reports on Thursday.
The reason is the forthcoming Basel 3, the update of the Basel Accords that regulate international banking. The Basel 3 regulations include the introduction of a leverage ratio, a framework for counter-cyclical capital buffers and measures to limit counter-party credit risk, all of which will make borrowing much more expensive.
Although Basel 3 is not due to come into force until 2019, banks will start introducing the measures over the coming years. This will lead to an annual increase in interest rates of hundreds of millions of euros for housing corporations alone, the paper says.
Until now, bank supervisors only looked at leverage ratio and credit risk. Municipal banks carried little credit risk because they are underwritten by the government. Basel 3 will change this.
Geurt Thomas, CFO at the local authorities bank BNG which finances publicly-owned organisations, told the paper: ‘We played no part in causing the financial crisis but we will be hit hard by these new regulations.’
The municipal banks and their customers are currently lobbying The Hague to have the international regulations adapted to avoid the huge rise in their borrowing costs.
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