BRITAIN is worried that a new set of European banking rules will widen a “fracture at the [EU’s] heart” and has marshalled the support of at least six other member states for a long list of demands in the negotiations.
Europe’s finance ministers head to a crucial meeting in Brussels this week to thrash out a deal on new rules that are meant to make the region’s banks safer, one of the key issues that sparked David Cameron’s “veto” of an EU treaty last December.
Ahead of the meeting, the UK’s full list of demands is revealed today as City A.M. publishes a 10-page Treasury document (extracts below) outlining Britain’s position on a the set of rules known as the Capital Requirements Directive IV or CRD IV.
The document shows that rather than “standing up for the City”, the UK is most concerned about retaining the ability to toughen up the rules hitting financial firms.
And it is highly critical of attempts by other EU countries – understood to be led by France and Germany – to “[allow] less stringent prudential standards” and calls on Brussels to “[remove] the majority of options and discretions” in the rules.
The UK is also infuriated by France’s attempt to retain a loophole for banks that own insurers, allowing “double counting” of their capital reserves.
But since Britain set out its position, which proved so unpopular in December, it has won the support of Spain, Poland, the Netherlands, the Czech Republic and Hungary in addition to that of Sweden.
Denmark, which currently holds the EU’s presidency, will attempt to broker a compromise on Wednesday.
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On the EU’s unwillingness to let the UK goldplate the new rules: “No compelling evidence is provided for this approach in the proposal’s impact assessment... It is important that member states retain the discretion to react to systemic risks emerging through national specific structural characteristics or credit cycles.”
On the proposal that member states should be allowed to define “common equity”: “The current fragmented definition of equity [is] one of the key deficiencies... CRD 4 would further exacerbate this fracture at the heart of [Europe]”
On the French demand that banks that own insurers retain a loophole: “Allowing member states to continue using divergent approach is also inconsistent with the single rule book in banking... [it allows] dangerous double counting of capital between banks and insurance subsidiaries.”
On applying the rules to investment firms: “These proposals are disproportionate and were not subject to an impact assessment.”
On keeping covered bonds exempt from extra scrutiny: “There should be no question of such a permanent exemption existing that will distort the single market.”
Key extracts from a leaked paper outlining the UK’s lobbying position on CRD IV, a set of new EU regulations intended to put the Basel III capital rules in place.
KEY POINTS: CRD IV
■ The Treasury has outlined 10 pages of changes it wants made to new EU rules on how much banks must keep in reserve, know as CRD IV or the EU’s Basel III.
■ Britain is concerned that the EU is letting other states water down the rules for their banks, instead of giving strict and detailed minimum standards for the whole region.
■ But the UK is also anxious that EU is not giving Britain enough flexibility to goldplate the rules and implement its own banking and regulatory policies on top of them.
■ Among the key sticking points are how strictly the EU should define “core capital” and what kinds of asset should count towards banks’ buffer of liquidity held against a credit crunch.
■ France and Germany are the main opponents of Britain’s position. Finance ministers are meant to thrash out a deal on Wednesday after months of deadlock, but if they fail, the dispute could go on into June.