| LONDON, April 27
LONDON, April 27 The European Union's banking
regulator told member states on Friday he would take them to
court if they allowed local lenders to circumvent tougher
European Banking Authority chairman Andrea Enria issued the
blunt warning as EU countries finalise stricter standards for
bank buffers and apply lessons from the financial crisis when
many lenders were rescued by taxpayers.
EU finance ministers will hold a special meeting next week
in a bid to end a deadlock over how to turn the global Basel III
accord on tougher bank capital standards into EU law.
Enria is concerned capital standards will be diluted if
states, rather than the EBA, have the last word on whether
capital held by banks in their buffers passes quality checks.
If only member states endorsed instruments being used in
buffers, it would convey the misleading impression that such
instruments also have EU-wide recognition, he said.
In a speech in Dublin at a central bank of Ireland
conference on regulation, Enria said he would act if the draft
law failed to give him the necessary legal tools to impose
consistent pan-EU bank capital standards.
"If we consider that some instruments that are not of
sufficient quality have been accepted, we also have the
possibility to open formal procedures for breach of European
law," Enria said.
The EBA clashed with Germany, the EU's biggest state, last
year over what types of capital could be included in an EU
stress test of lenders, and effectively won the day.
It has also set a temporary 9 percent core capital target
for banks in the EU by the end of June to help shore up investor
Enria said that in the past supervisors were "played against
each other" by banks wanting to include increasingly complex
hybrid instruments - a mix of debt and equity - in their capital
buffers which failed to absorb losses during the crisis.
Some EU countries say that as there is no common definition
of a share in Europe, it would not be possible to say that core
capital buffers must only comprise pure equity, as Britain is
Instead, the EU law will list criteria for including non
pure-equity instruments in core buffers.
Enria said a strong mechanism was needed to monitor how this
list was respected to make sure "there is no watering down the
"Having strong enforcement tools is essential: Supervisors
have lost control of the definition of capital once and we
should not allow this to happen again," Enria said.
"We already hear that new ways are being devised to smooth
the impact of permanent write-downs or to circumvent the
prohibition of dividend stoppers for hybrid instruments."
(Editing by Dan Lalor)