Update on Basel regulations impacts on the financing of infrastructure projects !

1. Update on Basel regulations impacts on the financing of infrastructure projects ! Michel BILGER Confederation of International Contractors' Associations 7 November2017

2. Evolution of the bankingregulation First bank solvency ratio Basel 1 1988 Own funds Risks Basel 2 Risks : Internal models 2004 Own funds : quality & quantity Basel 3 2010 Basel 4 So why ? 2017 ?

3. The view of the Basel Committee : The challenge is to complete the Basel 3 reform September 2011: the Basel Committee launched a program of evaluation of the implementation of Basel 3. This program aims to ensures the concordance of the regulations and the consistency of the produced measures

4. The view of the industry: The reform is dubbed “Basel 4” given the far reaching effects ! • It is a revolution! The process set up by sequence (successive consultations : standard methods then models and calibration) did not properly analyze the risks and impacts. • This is a step backwards compared to the sensitivity measures of risks introduced by Basel 2 and it may reintroduce the negative effects of Basel 1 (move to riskier loans...) • There are technically strong contradictionsin the consultations (there is even no common definition of default !) • It promotes the shadow banking • It will penalize customers Page 4 – ESR Financial Conglomerate - May 2016

5. The European system must tend towards an American-style system a secure model !

6. Twologics oppose … Page 6 – ESR Financial Conglomerate - May 2016

7. Update on Basel regulations impacts on the financing of infrastructure projects Impacts ?

8. The normal shape of a riskcurve

9. Basel 4 islessrisk sensitive : • The example of corporates !

10. Lessrisk sensitive weightings

11. The output floor New standard 2 Output floor 3 Current sensitive 1 3 1 > ! but >

12. The impacts wouldbeverysignificant ! • For real estate : • a move to the standardised approach would represent a 230% increase in capital requirements • For specialised lending : • a move to the IRB-Foundation approach would multiply capital requirements • by 2 to 4 depending on the project.

13. 3 challenges for banks ? Page 13 – ESR Financial Conglomerate - May 2016

14. The risk of unintended consequences on the global economy and society Volumes Prices

15. Update on Basel regulations impacts on the financing of infrastructure projects Whatcanwe do ?

16. But if thereis an agreement in Basel, itis not the end of it ! • A reviewclause ? • From recommandations to regulations • A very long phasing : 2026 to 2029 ? • The regulatoryoffsets («Pillar 2 ») ? Randal Quarles, 60 ans, qui a été sous-secrétaire au Trésor sous George W. Bush et dirigeait jusqu'ici un fonds d'investissement

17. Statements are quitereassuring… ”As a result of this assessment, the Committee will focus on not significantly increasing overall capital requirements”. “The EBA also believes that the Basel Committee should avoid that the new proposals lead to significant increase in overall capital requirements and preserve the core strength of the IRB approach, namely a high degree of risk-sensitivity”. Danièle NouyAnd Basel III, the centre piece of regulatory reform, is about to be finalised (...). There will be no significant further increases in capital requirements, and we are not discussing Basel IV. Regulatory reform is coming to an end. Page 17

18. Mutualmobilizationis essential ! Currentproposals are not calibrated to differences in markets and they use toomuch a « one size fits all » approach… Recognition of the quality of the team and models in terms of capital requirements Recognition of : * the benefit of dual recourse on the property AND on the borrower. * the fixed rate borrower's benefits