Dutch lender to merge with Rabobank Friesland Bank, a regional Dutch retail lender, is to merge with co-operatively owned compatriot Rabobank after the smaller group realised it would have difficulty meeting the requirements of the new Basel III banking rules as an independent entity. Friesland said the decisive issue was uncertainty that it would be able to meet higher core capital requirements under Basel III. Pressure on earnings amid the eurozone crisis also played a role. Last year Friesland had to significantly write down its 23 per cent holding in Dutch private bank Van Lanschot, which put its capital ratio under pressure. Friesland said its board had decided last autumn that trying to maintain independence "was no longer responsible towards the clients and employees." Piet Moerland, chairman of Rabobank's board of supervisors, told the Financial Times that the lender was eager to gain Friesland's 300,000 depositors, mainly in the north of the Netherlands. He said Friesland's decision was driven by a "whole cocktail" of negative developments in 2011. "At this point, Friesland Bank's solvency and liquidity are perfectly adequate," said Mr Moerland. But "in light of the ratcheting up of demands under Basel III, particularly if profits come in low again," the bank decided to seek a buyer with a stronger capital position. The Dutch combination could well be followed by other bank mergers as the Basel III rules are phased in over the next six years. A tighter definition of capital could hit small banks in the European Union particularly hard because the 27-nation bloc has said it will apply the entire Basel III framework to all of its banks. The US and many other members of the Basel Committee have only promised to apply the tighter rules to their large, internationally active banks. Rabobank had risk-weighted assets of €223.6bn at the end of 2011 and a core tier one capital ratio of 12.7 per cent. The bank's credit rating was downgraded from triple A to double A this year mainly because of eurozone risk, but it is still viewed as one of the safest financial institutions in the world. Friesland was hit by the part of the Basel III rules that limit the amount of cross-held shares in other financial institutions that can count towards tier one capital. By 2019, they will only be allowed to use such holdings for up to 10 per cent of their capital. Bert Bruggink, Rabobank's chief financial officer, told the Financial Times that under the rules Friesland would have had to stop counting its shares in Van Lanschot towards tier one capital. "All other conditions constant, [Friesland's] tier one capital ratio in 2019 would have been in the neighbourhood of 4 per cent," Mr Bruggink said. Friesland had tried for two years to find a buyer to bring its shares in Van Lanschot down to less than 10 per cent, but "it takes two to tango," Mr Bruggink added. In a note, Jan Willem Weidema of ABN Amro Securities said Basel III rules made it "punitive for capital ratios to have a stake of greater than 10 per cent in other financial institutions." The Netherlands" competition authority announced on Monday that it had approved the merger in a "speed decision" to guarantee continuity of service. The banks said the integration process would take two years, during which time jobs at Friesland will remain guaranteed. Additional reporting by Brooke Masters in London