Tuesday

4th Aug 2020

Member states and MEPs agree battle lines on bank rules

  • Belgium: Bailed-out Dexia bank was rebranded 'Belfius' (Photo: Valentina Pop)

EU finance ministers on Tuesday (15 May) agreed to start negotiations with the European Parliament on stricter capital rules for banks, one day after MEPs adopted their own stance on the dossier.

The new rules should kick in next year and prevent banks from taking too high risks and being in the need for public bail-outs.

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Ministers agreed unanimously on the compromise text tabled by the Danish EU presidency, amid a more conciliatory stance from Britain.

Earlier this month, British finance minister George Osborne refused to sign up to the text in a 16-hour long session, saying he was not willing to agree to something that would make him "look like an idiot."

But on Tuesday, Osborne referred to the "considerable uncertainty in the eurozone" and said new rules for the European banking system were badly needed.

A resurgence of banking troubles hit southern countries in recent weeks, with Spain's government taking over major lender Bankia and pushing for its own national reform of the banking sector. Meanwhile, 26 Italian banks were downgraded by Moody's ratings agency on Monday.

The new rules, which still have to be negotiated with the European Parliament, implement globally agreed standards called the "Basel 3 capital requirements" asking banks to increase their "core capital" from two to seven percent.

Britain, initially supported by Sweden, Poland and the Czech Republic, argued that its national regulators should be allowed to go beyond that requirement, without having to ask EU institutions for permission.

But the EU commission, the European Banking Authority, Germany and other countries argued that it would create an uneven playing field and that lending to poorer economies would be hampered. The compromise solution allows them to put an extra five percent requirement for banks in their own country and three percent for their branches abroad.

"The presidency has found a balanced solution where deviations are possible within certain limits and with the common monitoring and coordination necessary to protect the internal market," the Danish EU presidency said in a statement.

Transparency of banks' lending and stricter rules on corporate governance are also part of the package in negotiations with the European Parliament.

On the other side of the European district in Brussels, MEPs dealing with this dossier on Tuesday were happy to announce that they also had agreed unanimously among the 44 economics committee members on the principles for negotiations with ministers.

"We want to stabilise and Europeanise the banking sector. We want justice and fair play amongst bank," Austrian centre-right MEP Othmar Karas said in a press conference.

"When it comes to bonuses, we don't think ECB cheap money should be used," he added, in reference to the €1 trillion worth of cheap loans issued by the European Central Bank to eurozone banks.

Fo his part, EU financial services commissioner Michel Barnier, who drafted the original text, said that while bonuses were not included in the basket of measures, he thought it was "a good idea" to bring them up.

"Some of these bonuses are very difficult to justify," he said at a press conference after the finance ministers' meeting.

NGOs monitoring the influence of banks on the new laws are unimpressed with the text.

"Thanks in part to lobbying by the banks, the proposal tabled by the Commission and discussed by the European Parliament and in the Council at the time of writing, is indeed weaker, driving standards lower than the global level," Corporate Europe Observatory, a Brussels-based NGO said in a statement.

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