Bloomberg News

EU Officials Draft Some Compromises on Basel Bank Law

November 13, 2012

The European Union edged closer to settling how to impose Basel bank capital rules on its lenders after officials and lawmakers drafted potential compromises on parts of the regulatory overhaul.

Officials and lawmakers said a deal on the legislation was in sight following negotiations yesterday in Brussels. The measures, known as Basel III, would more than triple the core capital that lenders must hold as a buffer against insolvency, and require banks to meet minimum liquidity rules. The European Parliament has called for curbs on banker bonuses, too.

It’s “possible and probable” that there will be an agreement on the draft law before the end of the year, Michel Barnier, the EU’s financial services commissioner, told ministers at a meeting in Brussels today. The main outstanding issues are capital surcharges for systemically important banks and bonuses, he said.

Nations are struggling to meet a Jan 1, 2013, deadline for starting to apply the revised Basel rules, which were drawn up by global regulators to prevent any repeat of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc.

The Financial Stability Board said on Oct. 31 that only eight of the 27 countries that drafted the requirements, known as Basel III, were ready for the 2013 start date. The measures are scheduled to phase in, and would fully apply from 2019.

‘Major Step’

The EU’s draft law to apply the rules must be approved by the EU parliament and by national governments before it can take effect.

Yesterday’s negotiations were a “major step” toward a deal, Barnier said. Governments should “redouble their efforts,” to secure a final agreement with lawmakers, he said.

The rules, prepared by the Basel Committee on Banking Supervision, toughen the definition of what types of reserves banks can count toward their core capital. The international accord also sets minimum amounts of easy-to-sell assets that banks must hold to survive a credit squeeze, and standards on stable funding for lenders.

Draft political compromises were reached on 16 points discussed at yesterday’s meeting, Othmar Karas, the lawmaker leading the parliament’s work on the rules, said after the talks. He said he hoped the remaining issues can be resolved at meetings next week in Strasbourg, France.

The parliament has called for a ban on banker bonuses that exceed fixed pay as part of crackdown against excessive risk taking. The move has been resisted by governments, which are concerned about the impact of the measure on competitiveness.

Further Curbs

Barnier said that further curbs on bonuses are “justified and necessary” and that he backed the parliament’s planned ban. Nations should “raise their level of ambition” on bonus curbs, he told reporters today.

The EU should strive for an accord on the Basel law by Dec. 4, when the next regular meeting of the bloc’s finance ministers takes place, Barnier said.

Barnier also warned nations against seeking too much freedom to adopt bank capital rules that are tougher than those required by EU law.

“I know and understand the wish for flexibility,” Barnier said. “Nevertheless, I consider that this can’t be done to the detriment of the EU’s common market and even more so not to the detriment of neighboring countries.”

The debate over flexibility had become intertwined in the negotiations on the draft Basel law with a push from the EU parliament to impose extra capital rules on systemically important banks, Barnier said.

Key Part

Sweden’s Finance Minister Anders Borg said that flexibility for national regulators to set tougher capital rules had been a key part of a negotiating position agreed on by finance ministers in May.

“It’s very important we stick to the general principles of the agreement,” Borg said at today’s meeting.

U.S. regulators announced last week that they wouldn’t meet the 2013 deadline.

“I can understand that they need a few extra months,” Barnier said. “But what I expect is that we respect the commitments we have all made.”

Barnier said that he is still seeking for the rules to start applying to EU banks from January.

“We don’t just implement these rules to respond to demands from the G-20, we do it because our banks need them,” he said. “The European banking system needs to be more robust.”

The European Banking Federation has called for a delay in the start date for phasing in Basel III, saying that lenders have insufficient time to prepare.

“The rules are not yet definitive, and we expect them to be rapidly finalized,” Barnier said. “For the moment I’m sticking to the calendar.”

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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