Brussels, 2/05/2012 (Agence Europe) - As we were going to press, EU27 finance ministers were in a special meeting of the ECOFIN Council on Wednesday 2 May to try to reach agreement on a regulation and directive proposed by the European Commission to increase bank funding requirements and introduce into the EU the Basel III Agreement next year on bank surveillance (see EUROPE 10601). If the ministers manage to reach agreement, then the Danish Presidency will start negotiating with the European Parliament to see whether the legislation can be adopted in first reading.
The ministers are expected to decide on two issues - the size of the buffer against systemic risk, in other words the amount of extra, high-quality, funding that member states will be able to require of big banks registered in their country, and the year (2015 or 2018) when banks will be forced to publish leverage ratio details.
On the first issue, the Commission wants maximum harmonisation of funding requirements for banks in order to ensure unity on the single market in financial services, and wants strict rules on the additional funding requirements that member states are allowed to introduce. It also wants to authorise the cash cushion rules before countries are allowed to introduce them. It argues that countries introducing their own requirements would lead to a funding supermarket, with countries trying to attract banks through the level of funding they require, which in turn could lead to a credit crunch in some nations, particularly in central Europe. France, Austria, Luxembourg and Germany agree with the Commission's arguments, opposed by the United Kingdom, Sweden, Poland, the Czech Republic and other “new” member states, which want to introduce stricter capital requirements.
The potential compromise submitted by the Danish Presidency suggests that the additional funding buffers for big banks of “systemic importance” should be no higher than 3% of its assets. The European Commission would have to give prior authorisation before countries could introduce a buffer of over 3%, following a positive opinion from the European Banking Authority and the European Systemic Risk Board. The buffer would apply to all of a bank's exposure in the country where it is registered, in other member states and in non-EU countries. The buffer would be on top of the Basel III requirements, which also introduce a 2.5% buffer on top of the normal capital requirements.
In a previous discussion among ministers ahead of the Danish Presidency's negotiations with individual countries, most countries said that agreement was needed in the very near future in order to stick to the Basel III deadline for harmonised rules in the EU and a raft of guarantees for international partners about the health of European banks. Member states still disagree, however, over the question of harmonisation of the rules and the degree of flexibility to be granted to member states so that they can decide on stricter funding requirements. EU Internal Market Commissioner Barnier says he is prepared to agree to an additional buffer of 3% for domestic and foreign risk, as suggested by the Danish Presidency, and also, by way of compromise, a slightly higher percentage if the European bodies agree to it. He rejected the idea that the bank supervisory authority of the country where a bank has its headquarter should be allowed to authorise an additional capital buffer for exposure in other EU member states without prior authorisation from the Commission. The right to apply stricter rules was defended by the United Kingdom, Sweden and Poland, which want to avoid any repeat of the bank bailouts of 2008 to the tune of billions of euros or pounds of taxpayers' money. Swedish Finance Minister Anders Borg said that it was a choice of either having strong banks, or the taxpayer having to be prepared to foot the bill. He suggested a 5% buffer as a compromise solution, where possible with the positive opinion of the European Banking Authority. British Chancellor of the Exchequer George Osborne said agreement had to be reached because the markets were watching developments. He said that standardised, diligent application of the Basel III rules was a test for Europe. He said he could go along with only a 3% buffer, but if others wanted a higher buffer, he was open to the idea. French Finance Minister François Baroin expressed concerns about setting up an uneven playing field by giving member states too much freedom without the scrutiny of the Commission, to the benefit of banks focusing on international business to the detriment of the others. Baroin said that for the year when leverage ratios have to start being published (see EUROPE 10605), then in a spirit of compromise, France could go along with the idea of the rule coming into force in 2015 rather than 2018, following publication of a special report by the European Commission. This was echoed by German Finance Minister Wolfgang Schäuble, who said the date would not stand in the way of a compromise. He said that the European Banking Authority should be given greater macroeconomic surveillance powers and if agreement were forthcoming on this, then compromise would be possible on the question of national rules. (FG/transl.fl)