Wednesday

27th Jan 2021

Ministers in bid to agree stricter rules for banks

  • Risky investments and little capital pushed several EU banks into the abyss of the 2008 financial crisis (Photo: Burning Robot Factory)

EU finance ministers are Wednesday (2 May) holding a snap meeting devoted to new capital rules for banks, as the Danish EU presidency is trying to unblock the stalled talks.

A core piece of legislation aimed at preventing banks from going bust and asking for taxpayer's money as they did after the 2008 financial crisis, the capital requirements bill is proving difficult to get through the EU legislative channel.

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Member states are unable to agree on whether national governments or the EU should have the final say on how much cash a bank must hold.

"It is a one-item council that was not originally foreseen. The Capital Requirements Directive 4 is one of the most important and politically sensitive priorities of the Danish presidency, that's why we can't lose any time," one EU diplomat told journalists on Monday.

The new legislation de facto implements rules agreed at global level - the so-called Basel 3 - applying to 120 of the world's biggest banks, out of which 45 are in Europe. But the EU is going further, as the CRD4 directive will also cover smaller banks, some 8,300 in total.

Ministers need to agree how much flexibility national regulators will have in applying the new rules.

The UK is the main advocate for giving more leeway to national governments, pointing out that big cross-border banks may be international in their good days, but when it comes to bail-outs, they fall back on the national taxpayer.

A Danish compromise would allow national regulators to ask for up to 3 percent more capital calculated on everything the bank holds in the country and abroad, without asking permission from the EU commission. Anything above that would require Brussels' approval.

The EU commission - which drafted the proposal last year - has warned that giving national governments too much leeway would be counter-productive, especially in eastern Europe where the banking sector is dominated by subsidiaries of banks based elsewhere.

"A home member state could choose to apply higher capital requirements selectively to banks with high exposure in certain host member states. That would lead to a reduction of credit in host member states with adverse consequences for employment and growth," it warned in an internal memo seen by the New York Times.

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Britain's George Osborne at a 16-hour-long meeting on bank capital said some versions of the deal would make him "look like an idiot."

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