MAJOR parts of the government’s flagship bank and regulatory reform policy would be illegal under current drafts of EU law, Bank of England governor Mervyn King admitted yesterday.
Confirming City A.M.’s revelation on Monday that the government believes its policy could be “subject to legal challenge” under the current version of EU capital rules, the governor told a parliamentary committee that the flexibility so far granted by the European Commission is not enough to allow the Treasury to implement either the Vickers Commission’s report or its regulatory overhaul.
“The [European] Commission takes the view that some of the things we will want to do through implementing the Vickers Commission report proposals or indeed the macro-prudential framework… could be done through what is known as Pillar 2,” he said. “But this seems rather bizarre to us.”
The technical language refers to Europe’s concession to give the UK some wiggle-room to set its own rules (under “Pillar 2”), which Britain believes is not enough.
Asked directly if the rules grant enough discretion to implement the government’s policies, King said simply: “No.” The rules are known as Capital Requirements Directive IV.
King also controversially called for the Bank’s new Prudential Regulatory Authority (PRA) to have the power to force banks to alter their borrowing even if they have not broken any rules.