Bloomberg News

EU Ministers Fail to Reach Deal on Bank Capital Rules

May 03, 2012

George Osborne, chancellor of the exchequer speaks to fellow finance ministers at the European Council headquarters in Brussels, on Feb. 21, 2012. Photographer: Jock Fistick/Bloomberg

George Osborne, chancellor of the exchequer speaks to fellow finance ministers at the European Council headquarters in Brussels, on Feb. 21, 2012. Photographer: Jock Fistick/Bloomberg

European Union finance ministers failed to reach an agreement to toughen bank capital rules in the face of British resistance and now aim for a deal at their next meeting on May 15.

Sixteen hours of talks in Brussels that ended early today snagged on when countries can tighten domestic banking regulations and add to EU minimum requirements on how much capital banks must hold. A compromise proposal from Denmark, which holds the EU’s rotating presidency, would allow governments to force their banks to add risk buffers of as much as 5 percent against their domestic and non-EU exposures.

U.K. Chancellor of the Exchequer George Osborne was one of the loudest voices calling for member states to gain the additional flexibility. He said the U.K. will also press for discretion on so-called macro-prudential oversight tools, such as when regulators can rein in housing markets.

Ministers will try to bridge differences during the next two weeks, defying a warning yesterday by German Finance Minister Wolfgang Schaeuble that failure to reach decision at this meeting “will be dangerous.” If no consensus is achieved, a decision could be taken through a majority vote.

Agreement among finance ministers will serve as a basis for negotiations with the European Parliament, which could begin later this month. The EU faces a Jan. 1, 2013, deadline for adopting rules agreed on by the Basel Committee on Banking Supervision.

Higher Thresholds

Nations have been divided over proposals by Michel Barnier, the EU’s financial services chief, to fix banks’ core capital requirements at 7 percent of their risk-weighted assets, with limited exceptions for national regulators to set higher thresholds.

“We have made real progress,” Barnier said in an e-mailed statement today. Barnier said he is “convinced” that the May 15 meeting will achieve agreement on a mandate to start negotiations with parliament.

The latest proposal on EU implementation of Basel rules says that member states can impose a capital surcharge of as much as 3 percent on banks’ exposures in other members of the 27-nation bloc. If an EU country is “specifically targeted” by another country’s additional requirements, it could go to the European Banking Authority for binding mediation.

Recent Revisions

The most recent revisions clarify when binding mediation is applicable. They also offer a procedure for countries to justify their decision when they want to impose an additional buffer on banks in the 3 percent to 5 percent range, and it adjusts the procedure required for countries that want extra buffers of more than 5 percent and must seek EU approval.

Technical work on these and other elements of the proposal will continue, Danish Economy Minister Margrethe Vestager told reporters after the meeting. Denmark has been leading efforts to strike a deal based on Barnier’s proposal, put forward in 2011.

“What we want at the end of this process is to implement the Basel agreement,” Osborne said yesterday during the meeting’s public debate. “I’m not prepared to go out there and say something that is going to make me look an idiot five minutes later.”

To contact the reporter on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net


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