Bloomberg News

EU May Push Through Basel Bank Capital Law Over U.K. Protest

May 11, 2012

The European Union may enact a proposal for applying Basel bank capital and liquidity rules in the region by a majority vote, overriding U.K. opposition, if no consensus can be reached, a Danish official said.

Sixteen hours of talks on the bill last week snagged on how far national regulators should be allowed to tighten regulations and add to EU minimum requirements for bank capital. Both the U.K. and Bulgaria rejected a compromise plan put forward by Denmark, which holds the EU’s rotating presidency.

Denmark will seek approval of the plan when EU finance ministers meet in Brussels on May 15, the official said on customary condition of anonymity. The meeting comes a day after lawmakers in the European Parliament will adopt their negotiating position on the draft law.

“The general attitude of the presidency is always to seek the broadest possible agreement,” the official said. Still, Denmark doesn’t exclude “using the rules of the treaty” to approve the measures by majority vote. A “clear majority” of nations supports the compromise plan, the official said.

Denmark is continuing its efforts to secure unanimous backing for the bill, the official said.

U.K. Chancellor of the Exchequer George Osborne was one of the loudest voices at the May 2-3 meeting calling for member states to gain additional flexibility to toughen rules for their banks.

Vickers Report

Osborne said that the proposal could prevent the U.K. from fully implementing a rule overhaul for its lenders recommended by a panel chaired by former Bank of England Chief Economist John Vickers.

The draft law must be approved by ministers and by the European Parliament before it can come into effect. The EU faces a Jan. 1, 2013, deadline for adopting the rules agreed on by the Basel Committee on Banking Supervision.

Parliament will settle its negotiating position on the bill with a vote on May 14, the assembly said in an e-mailed statement.

Lawmakers from the assembly’s main political groups have already reached some agreements on amendments to the draft law, Sharon Bowles, chairwoman of parliament’s Economic and Monetary Affairs Committee, said by e-mail.

Compromise Amendments

The amendments include a requirement that banks disclose profits from carry trades derived from the more than 1 trillion euros ($1.3 trillion) in three-year loans that the European Central Bank has provided to the lenders since December, and exclude the money from bonus pools, Bowles said.

Banks would also be required to disclose more information to regulators on so-called repurchase agreements, she said.

Other measures that have widespread support in the parliament include requiring the EU to review a loophole in bank capital rules that allows lenders to escape holding any reserves against debt issued by governments in the region.

Political groups in the parliament have also agreed to seek to cap bankers’ bonuses at 100 percent of fixed pay, according to Philippe Lamberts, the lawmaker leading work on the rules for the assembly’s Green group.

The Basel committee brings together regulators from 27 countries including the U.S., U.K., and China to set prudential rules for banks.

The group in 2010 agreed to more than triple the core capital than lenders must hold to protect themselves from insolvency as part of a measures to prevent a recurrence of the financial crisis that followed the collapse in 2008 of Lehman Brothers Holdings Inc.

The measures, known as Basel III, must be implemented into nations’ laws before they can come into effect.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@Bloomberg.net


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