Bloomberg News

EU Finance Ministers Seek Deal on Basel Bank Capital Rules

May 15, 2012

Danish Economy Minister Margrethe Vestager told reporters, “I hope very much that we can make a firm decision today because the compromise is well balanced.” Photographer: Jock Fistick/Bloomberg

Danish Economy Minister Margrethe Vestager told reporters, “I hope very much that we can make a firm decision today because the compromise is well balanced.” Photographer: Jock Fistick/Bloomberg

European Union finance ministers are making a renewed attempt to hammer out an accord on boosting the amount of capital and liquid assets that must be held by the region’s banks after the U.K. rejected a previous compromise.

Sixteen hours of ministerial talks on the draft law earlier this month foundered over how much freedom national regulators should have to impose even tougher rules on their banks than those mandated by EU law. The U.K. and Bulgaria said that compromises drawn up by Denmark, which holds the rotating EU presidency, would diminish their sovereign rights.

“I hope very much that we can make a firm decision today because the compromise is well balanced,” Danish Economy Minister Margrethe Vestager told reporters before the meeting in Brussels. “We’re very close to an agreement. I think we’re almost there.”

Governments and lawmakers in the 27-nation EU face a January deadline to implement the bank rules, which were agreed on by the Basel Committee on Banking Supervision in the wake of the 2008 collapse of Lehman Brothers Holdings Inc. The measures, known as Basel III, would more than triple the core capital that banks need to hold to 7 percent of their assets, weighted for risk. Basel agreements must be implemented into nations’ laws before they can come into effect.

‘National Discretion’

The U.K. has argued that a proposal presented last year by Michel Barnier, the EU’s financial services chief, would threaten its ability to regulate its banks by allowing the EU to veto national moves to force lenders to hold reserves higher than the Basel minimum.

“What countries agreed upon in the last meeting is that there is room for national discretion in its true sense,” Vestager said. “We have a majority for the compromise of May 2, the important thing today is to enlarge that majority.”

U.K. Chancellor of the Exchequer George Osborne has said he won’t accept any EU interference in his plans to force some banks to hold core reserves of 10 percent of their risk-weighted assets.

“This is a time of considerable uncertainty in the euro- zone economies and that uncertainty is undermining the entire European recovery,” Osborne said today. “We’re reaching a point where we’ve got make a decision to see the euro zone stand behind their currency. A very important part of that is strengthening the European banking system and that is what we intend to do today.”

‘Broad Agreement’

Swedish Finance Minister Anders Borg said governments need to reach a unanimous decision on the proposal. The legislation is too important to be agreed by majority vote, he said.

“The prerequisites for a broad agreement are there,” Borg said. “The situation looks very promising for reaching a good and responsible solution that makes it possible for us to raise our capital requirement rules the way we have wanted to.”

The final version of the EU implementing law must be agreed on by governments and lawmakers in the European Parliament.

The parliament approved its negotiating position yesterday. Denmark has called on ministers to settle their disagreements so that discussions with the assembly can begin as soon as possible.

Lawmakers in the assembly have called for the law to be expanded to include limits on bankers’ bonuses and a so-called safeguard clause allowing the region to roll back the Basel requirements if other nations fail to apply them.

Tax Evasion

“A lot of technical work has been done between the last meeting and today,” Austrian Finance Minister Maria Fekter said. “We’ve come very far and I do hope that the mandate can be given.”

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

Ministers will also seek an agreement on a mandate for the EU to negotiate treaties against tax evasion on bank savings with Switzerland, Liechtenstein, Monaco, Andorra and San Marino.

Talks on the mandate have been hampered by resistance from Luxembourg and Austria, which have concerns the move may threaten their own bank secrecy.

Austria won’t bow to pressure to loosen its banking secrecy rules, Fekter said.

“I’m besieged from all sides and you know me: I will stand my ground,” Fekter said. “We are not going to give up this competitive advantage under pressure from big countries.”

Tax Decisions

Fekter said there are “absolutely no circumstances” under which Austria would agree to automatically hand over foreign depositors’ savings income data to their home tax authorities.

Still, she said, Austria would be open to enlarging the scope of the EU-wide interest tax law to cover more types of income.

All EU tax decisions require unanimity among the 27 governments.

Other points on the agenda of the meeting include talks on the EU’s 2013 budget and on boosting the European Investment Bank.

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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