EU deal on tougher bank capital rules faces major hurdles

LONDON Thu Dec 13, 2012 12:13am GMT

1 of 4. Ireland's Finance Minister Michael Noonan listens to his Austrian counterpart Maria Fekter (R) during a European Union finance ministers meeting in Brussels December 12, 2012.

Credit: Reuters/Francois Lenoir

LONDON (Reuters) - EU member states and the European Parliament, negotiating tougher bank capital rules on Thursday, face big hurdles to reach a deal and in any case will miss a globally-agreed January deadline for their introduction to start.

The meeting, beginning in Strasbourg, France at 9:30 a.m. British time, aims to negotiate a measure to put a global accord known as Basel III into European Union law.

It would force the bloc's 8,000 banks to triple the amount of capital they hold compared with the run up to the 2007-09 financial crisis, which led to taxpayers having to rescue many lenders.

"It's unlikely there will be a deal," said one parliamentary official.

"We are getting closer but there are still substantial points of disagreement," another parliamentary source said on condition of anonymity due to the sensitivity of the talks.

The two sides met on Tuesday and stumbled over two issues: what to count as capital, and parliament's insistence that bank bonuses should be no higher than salaries.

World leaders agreed two years ago that Basel III should be phased in from January, but a deal on Thursday would still need to be voted into law across the 27-country EU, meaning a formal start before the second half of 2013 or later is impossible.

A Bank of Italy official on Tuesday expected the law to take effect at the end of next year or January 2014.

"The date for introduction will be the last thing on the agenda after all other points are agreed," one of the parliamentary sources said.

The delay means banks and investors are left in the dark for longer about the exact impact of new rules on future profitability as the EU law will diverge in some respects from the global Basel accord.

The United States is also delaying its introduction of Basel III, meant to be the world's main regulatory response to the financial crisis to keep taxpayers off the hook in the next crisis.

Thursday's talks will try to iron out disputes such as how much leeway local supervisors should have to force banks to hold more capital than the 7 percent core minimum under Basel.

There is also disagreement over how liquidity buffers and caps on balance sheets should be introduced from 2015.

Separately, the global Basel Committee, which wrote Basel III, ends a two-day meeting on Thursday and is under pressure to ease the impact of its planned liquidity buffer as economic conditions remain tough.

(Reporting by Huw Jones; Editing by Anthony Barker)