The implementation of the final leg of Basel III has long been controversial in the European Union.
It is commonly acknowledged that the introduction of an output floor on internal risk weight models will necessitate a large capital increase for the region's banking sector — so much so that the new framework has come to be known as Basel IV.
Banking lobbyists are stepping up their efforts to influence how EU lawmakers implement the reforms, largely in an effort to water them down.
But these last ditch efforts may well prove to be in vain.
Ultimately, the power to influence the impact of the Basel rules is with the ECB, more than the European Commission. It is the ECB that determines how much capital banks should maintain, particularly through its institution-specific Pillar 2 requirements.
Any changes to risk weight sensitivity through Basel could easily be reflected in lower Pillar 2 capital demands across the industry, for example.
And the ECB is set to follow new EU legislation and allow firms to use weaker forms of capital to meet Pillar 2.
UniCredit, for its part, believes that it can free up 80bp of equity by using subordinated debt as part of Pillar 2. That alone would cushion two thirds of the bank's expected Basel impact, all else being equal. Other banks will surely follow it.
Market participants should surely be looking to the ECB, not the politicians, to determine whether it is going to be Basel III or Basel IV.