The (pictorial) European bank capital rules deathmatch | FT Alphaville

The (pictorial) European bank capital rules deathmatch

It went on so long even the translators gave up — there was sure some mud-slinging going on in Brussels on Wednesday as European finance ministers met to try to agree legislation to implement Basel III rules on bank capital.

One could be forgiven for wondering how this is even still a debate at all.

You may thank the strange machinations of politics for the fact that something that was agreed in principle in 2010 by the European Union and Group of 20 still hasn’t actually been written into law (i.e. we don’t get it either).

Admittedly, the arguments going on in Brussels may have been a bit overshadowed by the French presidential debate. But it was all drama amongst the European finance ministers with the UK Chancellor George Osborne getting especially titchy (when cornered).

It went a little something like this…

FT reporter Alex Barker on the riposte from EU Internal Market Commissioner Michel Barnier to Osborne:

The “polemic” drew an angry response from Michel Barnier, the French EU commissioner overseeing financial services, who insisted his rules complied with Basel while taking account of European “specificities”.

The contentious point for Osborne is that Barnier’s “specificities” do not extend to the Brits’ (and Swedes’) desire to impose even tougher capital requirements on their own banks than Basel III does, without having to ask the commission for permission to do so.

Sayeth Barnier:

(The ECB has called for stricter, and more transparent, capital requirements.)

And Osborne wasn’t having any of it:

There’s hope yet though. And, in any case, the mood at the moment seems to be that the differences will be resolved… eventually, and maybe a little like this:

Under one compromise, Britain and Sweden would have the option to tack on a capital buffer – amounting to 3 per cent of assets adjusted for risk for total bank exposures and 5 per cent of national exposures – without EU approval.

But there would still potentially be a procedure whereby such moves could be vetoed. The discussions will continue on May 15th.

Osborne, meanwhile, did not walk away completely empty-handed:

In return, London won other concessions. On liquidity rules, a clause would allow any future Basel decisions to be incorporated into law, once Brussels makes adjustments. France and Germany also appeared to drop demands to water down the global rules on leverage, which limit total bank borrowing.

But the WSJ reports on just how awkward the whole episode was:

U.K. Chancellor George Osborne had insisted on including new ‘macroprudential’ regulatory instruments into the discussion on how much power member states should have in setting the rules for their respective financial sectors. Ironically, the government was unable to say what macroprudential powers it wants, as it says this is a matter for the new and independent Financial Policy Committee.

“On substance yes, it was 26 against one” by the end of the talks, one EU official said.

So Osborne was cornered and unable to say want he wants. Kinda reminds you of what being a teenager was like… only you’re the Chancellor of the Exchequer. Did we already say this was awkward? We did, didn’t we?

Related links:
EU Ministers Fail To Agree On Deal For Implementing Basel Rules – WSJ
UK in furious rejection of EU bank plan – FT
Vickers harmonies – FT Alphaville