Bloomberg News

EU Misses Basel Bank Rules Deal, Will Revive Talks Next Week

February 20, 2013

EU Banks May Have to Meet Basel Liquidity Target Before Rivals

A European Union flag flies outside the European Central Bank headquarters in Frankfurt. Photographer: Ralph Orlowski/Bloomberg

The European Union failed to seal a deal on Basel bank rules after disagreeing on bonuses, capital requirements for big lenders and disclosure of profit and tax at talks in Brussels yesterday.

Lawmakers will resume negotiations with governments on Feb. 27 in a bid to avoid further delays after the bloc missed the new-year deadline to begin implementing the so-called Basel III accord.

“We are not ready now,” Othmar Karas, the legislator in charge of the EU parliament’s work on the rules told reporters after the talks yesterday. “I think the council had no mandate to finalize” the discussions, he said, referring to the grouping of EU governments currently chaired by Ireland.

The EU, like the U.S., has struggled to agree on legislation to apply the international standards on capital, known as Basel III, which were published in 2010 as part of efforts to prevent any repeat of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc.

Talks were deadlocked last night on five issues, Karas said. Lawmakers failed to agree on bonus conditions which would allow bankers to receive as much as twice their fixed pay with shareholder approval, powers for the European Banking Authority, capital requirements for systemically important lenders, tax and profit disclosure and the ability of individual states to impose tougher rules.

On tax disclosure, “the question of basic transparency requirements” of the profits banks make, taxes they pay and subsidies they receive “on a country-by-country basis” was not resolved and will also be discussed next week, according to a separate statement by Karas and other lawmakers.

Another unresolved issue going into next week’s talks is how much flexibility EU states would have to impose stricter rules on their banks.

Still, Karas said that the talks did find consensus on the need to phase in a liquidity ratio by 2018, one year ahead of the schedule agreed on last month by global regulators. The measure requires banks to hold enough easy-to-sell assets to survive a 30-day funding squeeze.

EU lawmakers have insisted that the EU legislation to implement Basel III include curbs on variable pay as part of a quest to reshape lenders as utilities rather than money-making machines.

Members of the assembly’s economic and monetary affairs committee called last year for an outright ban on bonuses that exceed fixed pay.

Fixed Salaries

“Imposing a cap on the ratio of variable to fixed pay runs a high risk of increasing fixed salaries,” Isabel Pooley, a lawyer at CMS Cameron McKenna, said in an e-mailed statement.

Governments sought to reopen a draft deal reached in December by the assembly and Cyprus, which then held the EU presidency, to cap banker bonuses at twice fixed pay. Under that proposal, bonuses exceeding fixed salary would be allowed only if the majority of a bank’s shareholders voted in favor.

Several nations, including the U.K., opposed that plan at a meeting last week. The British proposal included retaining existing EU rules that require some portion of bonus awards to be deferred and ensuring that payouts can be clawed back, according to officials.

The Basel Committee on Banking Supervision brings together banking regulators from 27 nations including to the U.S., U.K., and China to coordinate their prudential rule-making.

The Basel III measures, which must be written into national laws, would more than triple the core capital lenders must hold and set standards for how lenders should manage risks.

In anticipation of tighter capital rules, lenders are selling shares, eliminating jobs and trimming costs. BNP Paribas SA, France’s largest bank, announced plans to reduce expenses and boost its dividend last week. Deutsche Bank AG, Germany’s biggest lender, said Jan. 31 it exceeded a goal for raising capital levels and eliminated more than 1,400 staff.

To contact the reporters on this story:

Ben Moshinsky in London at bmoshinsky@bloomberg.net Rebecca Christie in Brussels at rchristie4@bloomberg.net

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


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