UK climbdown leaves City on worse footing
THE UK performed a huge climbdown over new banking rules for Europe yesterday as it agreed to sign up to rules that George Osborne said only two weeks ago would make him look “like an idiot”.
The result is the worst possible outcome for British banks, because while the UK won the right to goldplate the new capital requirements, which are known as “CRD 4”, it gave up on its demand that other states apply the same strict regime.
That means UK lenders will face much higher costs for carrying out their business than their EU rivals, particularly because Britain has won the right to implement the Vickers banking reforms.
Although Britain secured some concessions, such as the requirement that all EU banks disclose their leverage ratio from 2015, it allowed several glaring loopholes to remain in place for French and German banks.
In particular, national regulators will retain the right to define different qualities of capital however they want within certain criteria, something that Britain had said would create a “fracture” at the heart of the single market and was a significant watering down of the Basel III capital rules that the EU says it is implementing.
And France kept a large provision favourable to its banks that allows them to engage in what the UK had called “dangerous double counting” of their capital reserves.
Despite rolling over, the Treasury claimed the rules would create “a stronger and safer banking system in Europe”. A Treasury source said its view is that markets will prefer British banks, which are subject to a much harsher regime enforced by the FSA, because they will be safer. But it also leaves UK banks facing a much more difficult operating environment.
The rules will now be negotiated with other EU bodies, most of which favour inserting a new restriction on bonuses that would limit them to no more than 100 per cent of salary.