Brussels, 03/05/2012 (Agence Europe) - Late in the night of Thursday 3 to Friday 4 May, after 16 hours of talks, EU27 finance ministers reached an inkling of an agreement on bank capitalisation to enable banks to survive economic crisis by applying the Basel III Agreement capital requirements (see EUROPE 10607). Danish Finance Minister Margrete Verstager said that countries had moved closer on 20 or so important issues and the ministers have agreed to finalise the agreement at the next meeting, on 15 May, when various technical verifications have been made on the outstanding issues. Denmark holds the rotating presidency of the Council of the EU.
The stumbling blocks are the degree of flexibility to be accorded to member states under the new CRD IV rules unveiled by the Commission to phase in the Basel III Agreement from next year onwards, and the way the new rules will affect the single market. More specifically, ministers need to agree on buffers of extra top-quality capital that member states can set for big banks registered in their country, in addition to the 7% required under the Basel III rules.
The broad agreement reached yesterday, which now needs technical fine-tuning, sets a 3% buffer for banks' entire exposure (in the country where it is registered, in member states and in non-EU countries) without this having to receive prior authorisation from the European Commission. This will rise to 5% for exposure within the country of registration, again without prior authorisation from the Commission and/or European Banking Authority (EBA).
The negotiations were like drawing teeth. On the one hand, France, Germany and Italy followed the European Commission's line of full harmonisation of bank funding rules in Europe to prevent countries that set higher capital rules from sucking in cash from other member states. On the other hand, the United Kingdom was calling for virtually total freedom for member states to set whatever capital requirements they want in addition to Basel III and the Commission's suggestions, trying to restrict the Commission's scrutiny in this domain. Backed by Sweden and Poland, the UK says this is to avoid having to bail out the banks with taxpayers' money as happened in 2008, and also through a desire to provide top guarantees of bank health to the markets and international partners. British Chancellor of the Exchequer George Osborne said he was not going to leave the room and say things that would make him look stupid five minutes later when confronted by analysts. He accused the Commission of not properly applying Basel III. EU Internal Market Commissioner Michel Barnier said that was not true and the Commission was introducing the Basel III rules for the 8,300 European banks, which vary widely. The UK is important, but it is not the only country, said Barnier, backed by Italian Minister Grilli, who said he was not prepared to agree to unreasonable and disproportionate measures that were dangerous for the single market. German Finance Minister Wolfgang Schäuble said that failure to reach agreement that evening might mean failure to reach agreement ever, which would be a catastrophe.
Barnier said he was happy with the compromise, although he would have preferred a better balance between coordination and flexibility. The ball is now back in the sherpas' court to negotiate ahead of the 15 May Council of Ministers. If EU27 agreement cannot be reached, then a qualified majority vote may be used instead, but bank capitalisation is very important in Europe, particularly at the moment, and Europe cannot afford to give the impression that it cannot agree to introduce proper rules so countries are acting alone. (FG/transl.fl)