EU lawmaker turns up heat on U.S. over bank rules

LONDON (Reuters) - Banks in the European Union may not have to comply with tougher global capital and liquidity rules if the United States lags on implementing similar regulation, a top EU lawmaker said in a report.

Othmar Karas, who is steering a bill to implement tough new EU bank rules, wants the bloc's executive -- the European Commission -- to establish by March which of the new capital and liquidity rules cannot be introduced without simultaneous implementation in the United States.

World leaders agreed in 2010 to tougher bank rules known as Basel III to ensure lenders have bigger buffers to lessen the need for more taxpayer bailouts in a crisis. Karas is overseeing the legislation to implement Basel in the European Union.

The European Parliament, in which Karas is one of Austria's representatives, has joint say with member states on the bill's final content. Prolonged haggling over the details is expected.

In a report that forms parliament's starting position, Karas flags several tweaks that will prove controversial and likely to raise accusations that Basel III is being diluted.

DELAYS

The United States was years late in implementing the current Basel II accord while the EU ploughed ahead regardless. Karas is seeking to pile pressure on the United States to avoid a repeat with Basel III.

"In the context of the reluctant implementation of Basel III by the United States of America, it is necessary to ensure that the economy and the banking system in the Union are not placed at a competitive disadvantage," Karas said in the report.

World leaders agreed to phase in Basel III from the start of 2013. The EU will apply it to all of its 8,000 banks but the United States is only imposing it on the large domestic lenders.

The U.S. Federal Reserve proposed new rules last month to implement Basel III and its public comment period will not end until March 31.

The Fed has also said it will not finalise its liquidity rules until they are completed at the global level and Karas' report signalled a soft approach on these elements too, for now.

Karas wants to remove a requirement for banks to disclose publicly their leverage ratio and its components from January 2015.

This contrasts with Britain, where the Bank of England's regulatory committee has said lenders in the UK should publish their ratios by the start of 2013.

END OF ZERO RISK?

As expected, Karas' report seeks to begin a process that would end with banks being forced to build capital buffers against their holdings of lowly rated government debt.

Under Basel III, banks do not have to build such buffers, even though they will be forced to have "liquidity" cushions made up largely of government bonds, some of whose ratings have plummeted during the euro zone debt crisis.

Karas' report, published on his website, says the European Commission should propose "options to adjust that risk weight accordingly" though taking into account "potentially destabilising effects of tabling such proposals during periods of market stress."

Sharon Bowles, a UK member of the European Parliament, has said ending the automatic zero risk weighting on government bonds has become "mainstream" thinking but some euro zone countries are likely to oppose such as move.

Karas seeks room outside "normal times" to include lower quality capital in a bank's core Tier 1 buffer, which under Basel III should be only pure equity or retained earnings.

Some elements of his report could make it harder for member states like Britain to force banks from elsewhere in the EU to hold extra liquidity buffers locally.

Karas' report wants an assessment of whether gold and shares could be included in a bank's liquidity buffer.

(Reporting by Huw Jones; Editing by Jodie Ginsberg)