Bloomberg News

FSA’s Turner Warns Over ‘Harmful’ EU Bank Capital Measures

October 20, 2011

Oct. 21 (Bloomberg) -- Adair Turner, chairman of Britain’s Financial Services Authority, said European Union attempts to stop the U.K. from setting banks’ capital requirements higher than other countries are “potentially harmful.”

European Union rules on bank capital, yet to be agreed on by finance ministers of the bloc’s 27 member states, must include “adequate flexibility” for variation among countries and should give national supervisors the freedom to “exceed and vary” above the levels set globally, according to a copy provided by the FSA of his London speech yesterday.

The European Commission, the EU’s executive arm, has sought to remove the right of national regulators to increase bank reserves beyond minimum levels set by the Basel Committee on Banking Supervision. Seven finance ministers, including U.K. Chancellor of the Exchequer George Osborne and Spain’s Elena Salgado, wrote a letter to the European Commission in May saying plans to impose capital caps could cause “instability.”

“The idea that securing the single market requires the harmonization of maximum, as well as minimum standards, is simply wrong and potentially harmful,” Turner said.

The Basel Committee, a group comprised of global regulators and central banks, has decided on global measures including a 2.5 percent capital surcharge on large banks and tougher liquidity rules.

The agency that is to replace the FSA by 2013, the Prudential Regulatory Authority, will seek to end the culture of too-big-to-fail banks, Turner said. That means “subordinated debt holders and perhaps senior debt holders, and even perhaps uninsured depositors will suffer losses,” in a financial crisis, he said.

Too Big To Fail

“There is no point in saying that we are abolishing too- big-to-fail status unless we mean it,” Turner said.

The European Commission had planned to propose measures in September to force senior bondholders of failing banks to take losses. They were delayed because the rules may spook investors at a time of market turbulence and they need more work, two people familiar with the situation said.

The PRA is part of plans for the biggest regulatory overhaul since 1997, in which the FSA will be abolished and most of its powers returned to the Bank of England.

--Editors: Christopher Scinta, Peter Chapman

To contact the reporter on this story: Ben Moshinsky in London at bmoshinsky@bloomberg.net

To contact the editor responsible for this story: Christopher Scinta at cscinta@bloomberg.net


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