Tuesday 23 January 2018

Finance ministers agree deal on EU bank capital rules

Belgium's Finance Minister Steven Vanackere listens to Spain's Economy Minister Luis de Guindos (R) during an European Union finance ministers meeting at the EU Council in Brussels. Photo: Reuters
Belgium's Finance Minister Steven Vanackere listens to Spain's Economy Minister Luis de Guindos (R) during an European Union finance ministers meeting at the EU Council in Brussels. Photo: Reuters

Sarah Collins in Brussels

Compromise gives national regulators flexibility to impose extra requirements on financial institutions that pose 'systemic risk'

EUROPEAN finance ministers yesterday finally sealed a deal on new EU-wide bank capital rules, but bowed to pressure to give national regulators some leeway to impose higher standards on their banks. The deal had been in doubt after earlier talks ended in disarray.

The EU wanted common capital levels across the bloc, but Britain insisted on having flexibility to apply stricter rules to UK banks, as recommended by former Bank of England chief economist John Vickers.

The EU deal, struck yesterday afternoon in Brussels, endorses the Basel III rules that more than doubles the amount of high-quality capital lenders must hold to cope with future losses and also increases overall capital requirements for banks.

Banks will be required to have 4.5pc of the highest quality capital (up from 2pc now) and increase overall capital levels to at least 10.5pc, to guard against future losses.

They will be phased in between next year and 2019, but will have no immediate impact on Irish banks, since their capital levels are already well above the new targets as a result of last summer's €29bn recapitalisation.

Compromise

Under a compromise agreement brokered by Danish finance minister Margrethe Vestager, whose country holds the EU's rotating presidency, national regulators will retain the power to impose extra capital requirements of between 3pc and 5pc, without prior EU approval, on banks that pose a "systemic risk".

They can also tack on a series of extra capital buffers to offset risks such as losses from bad property loans.

Central Bank governor Patrick Honohan argued the importance of tailor-made national capital targets at a speech in London last week, where he also called for a pan-European banking regulator that would supersede national authorities across the EU.

Yesterday's EU deal comes as markets once again round on European lenders.

Moody's this week downgraded 26 Italian banks on the back of the continuing recession in the country, weak profits, problem loans and restricted market funding.

Spanish banks are also under the spotlight after the government announced the part-nationalisation of Bankia, formed after the merger of several smaller savings banks, and asked banks to set aside an extra €84bn against bad real estate assets.

"We're reaching a point where we have to reach a decision and see the eurozone stand behind the recovery -- and a part of that is strengthening the entire European banking system," said British chancellor George Osborne yesterday.

"Now more than ever, we need unity on bank regulation," EU banking chief Michel Barnier said. "Weak bank capitalisation, weak and poorly harmonised liquidity rules, and fragmented and uncoordinated supervision were all contributing factors to the financial crisis," he said.

MEPs, meanwhile, want to harden the accord by introducing restrictions on bankers' bonuses and shareholders' dividends.

Bonuses

The European Parliament's influential economic affairs committee voted on Monday to limit bonuses at the level of bankers' fixed salaries and restrict dividend payments to investors in banks that fail to meet the capital requirements.

A final deal won't be possible until both sides agree on a text. Bonuses are currently banned in the state-supported banks (AIB, Bank of Ireland, Permanent TSB and Irish Bank Resolution Corporation) but recent agreements on the Government's dealings with the banks pave the way for bonuses to be re-introduced.

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business