Luxembourg, 19/06/2015 (Agence Europe) - European finance ministers reached broad agreement on Friday 19 June on the draft legislation laying down structural measures for big European banks that take too many risks with their investment portfolios.
Latvian finance minister Janis Reirs was delighted that agreement had been reached after many hours of long, hard talks. He did not hide the fact that the agreement was a balance between divergent interests and some aspects of it were markedly different from the European Commission's initial proposals (see EUROPE 11007). Financial Services Commissioner Jonathan Hill said “the text is sensible, pragmatic and proportionate.” He said the future regulation would be another piece of the jigsaw for dealing with 'too-big-to-fail' banks and hoped the European Parliament would be able to reach a negotiating position on the matter (see EUROPE 11322).
The agreement will enable the future Luxembourg Presidency of the Council of the EU to initiate talks with the European Parliament (if the EP manages to draw up a negotiating position) and was made possible when the French lifted their reservations (see EUROPE 11338).
French finance minister Michel Sapin said the French had two issues. He said that risks must be assessed bank-by-bank when it comes to identifying excessive risks in investment and the British opt-out, while understandable, was the question of greatest concern to the French. Account will be taken of the UK's Vickers Law, but supervisory authorities have been given the power, he said, to avoid 'differentiation' whereby a bank's situation would have different legal consequences in the UK from in the rest of the EU.
In the end, the compromise was fine-tuned to request that the European Banking Authority (EBA) draw up guidelines on specific risks such as large-scale exposure.
The future regulation will cover big European banks with assets of over €30 billion over three years and banks whose investment business totals at least €70 billion or 10% of total bank assets. These big banks will be divided into two groups according to whether or not their investment exceeds €100 billion. Hill said half of Europe's thirty big banks have investment exceeding €100 billion and they will be subject to higher transparency requirements. Big banks with eligible deposits of less than 3% of assets or below €35 billion will not be covered by the regulation.
Investment other than proprietary trading (which will be automatically hived off into a subsidiary) will be subject to a detailed risk analysis. If a supervisory body were to identify excessive levels of risk, it would require the risky investment to be hived off; additional capital requirements for bodies carrying out retail banking; other prudential measures; or a combination of the three. The measures will apply three years after the regulation comes into force, therefore not before 2019. (Mathieu Bion)