EU lawmakers seek to broaden bank capital law
LONDON Nov 28 (Reuters) - European Union rules aimed at beefing up bank safety buffers may be widened to include a top-up capital requirement for the biggest lenders and extra reporting rules on securities lending.
Sharon Bowles, UK Liberal Democrat chairman of the European Parliament's economic and monetary affairs committee, signalled on Monday how the draft EU bank capital reform is being used to address other issues too.
There is an "interest in parliament" in putting a global accord for top-up capital surcharges on the biggest lenders into the draft law, she told an industry conference.
EU states and the parliament have joint say on the draft law with Bowles' committee playing a lead role in a final deal.
Bowles said she would also propose increased reporting requirements on the repurchase agreements and securities lending activities that underpin hedging and short selling.
"It seems to me we once originated to distribute and we now have originate to repo," Bowles said, a reference to the pre-crisis push by banks to 'originate and distribute' securitised products that later turned toxic.
Bowles will also propose an end to a current rule whereby banks do not have to set aside capital buffers on holdings of sovereign debt held in the bank's own currency.
Credit ratings on sovereign debt of many euro zone states like Greece has been downgraded sharply.
"There is no free lunch. There isn't such a thing as a risk free asset. Sovereigns right now should be teaching us that," Bowles said.
She urged the EU's executive European Commission to come forward with its draft proposal on how to wind down failing cross-border banks using "tools" such as imposing losses on bondholders to shield taxpayers.
The Commission has delayed publication as it does not want to spook markets already rattled by the euro zone debt crisis.
"If you leave a blank space the markets will fill it with the worst possible scenario," Bowles said. Assumptions that bondholders must never be at risk cannot continue, she added.
Attempts to widen the scope of the draft EU law will likely trigger concerns as the basic bank capital requirements are due to take effect from 2013 under a global deal known as Basel III.
The European Banking Authority also faces having to thrash out some 50 sets of implementing rules so the law can work on the ground, a time consuming process. (Reporting by Huw Jones; Editing by Andrew Callus)
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