BRUSSELS (MNI) – EU finance ministers meeting in Brussels Tuesday
reached an agreement on implementation of the Basel III bank capital
rules, paving the way for negotiations to begin with the European
Parliament on finalization of a law seen as an important part of efforts
to strengthen Europe’s banking system.

The European Central Bank and the European Banking Authority,
however, warned that the ministers may have proposed to give national
authorities a bit too much flexibility to set higher-than-minimum
capital requirements, by scrapping a mechanism that would have given the
EBA and the European Systemic Risk Board the authority to mediate in
cases where one country’s requirements caused spillover effects in other
EU countries.

ECB Vice-President Vitor Constancio, who had backed the UK’s
initial bid for more flexibility, said that he now questioned whether
too much flexibility had been given to national authorities “to the
point where there may be a risk of putting into question the single rule
book.”

Andrea Enria, Chairman of the EBA, also expressed concerns that
ministers may have agreed to give their national authorities “a bit too
much” discretion.

EU Internal Markets Commissioner Michel Barnier said he also had
reservations about the level of flexibility the ministers proposed.

The European Commission and some countries, including France, had
wanted to prevent individual governments from setting
higher-than-minimum standards, in order to avoid what they feared could
become a competition over standards that would endanger EU hopes for
integrated banking rules across the 27-country bloc.

Under the approach agreed by finance ministers today, national
authorities would be able to impose an additional capital requirement of
5% on banks’ domestic and non-EU exposures, and a capital surcharge of
up to 3% on their total exposure.

The ministers also agreed to give national authorities some
macro-prudential tools to tackle real estate bubbles through lending
standards and to better control transactions between financial
institutions.

Members of the European Parliament’s Economic and Monetary Affairs
Committee on Monday night voted on their own proposed changes to the
rules, adding tough new caps on bankers’ bonuses that are likely to be
opposed by some governments, including the UK, in negotiations to
finalise the law. The parliament has proposed to ban bonuses bigger than
a banker’s regular salary — a measure not even discussed by finance
ministers.

Members of Parliament also want to exclude from banks’ bonus pools
any profits derived from trades that are made using the cheap loans
dished out by the European Central Bank in its two 3-year Long-Term
Refinancing Operations.

Barnier warned, however, that finalization of the rules was “not
quite there yet,” and that changes could come as a result of the
neogtiations with European Parliament.

The Commissioner said that he thought the parliament’s proposal to
cap bonuses “makes sense.”

EU finance ministers agreed unanimously to the rules after the UK
was reassured that it would be able to implement its own plans because
of the extra-flexibility measures.

UK finance minister George Osborne warned earlier this month that
the proposal’s lack of a common definition for bank capital instruments,
and loopholes allowing financial conglomerates to double count the
capital in their insurance units for their banking arms, undermined the
credibility of the rules.

–Brussels newsroom: +324-9522-8374; pkoh@marketnews.com

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