EU reaches deal on bank bill as France wins late concessions

JUN 19, 20157:24 PM

[BRUSSELS] European Union finance ministers struck a deal on a law to tackle too-big-to-fail banks after France secured a last-minute technical change to exemptions planned for UK lenders.

France had scuppered talks by envoys from the EU's 28 nations earlier this week by seeking several changes to the bill, which addresses how supervisors should determine whether banks should have to split off trading activities from consumer services. Ministers reached a deal Friday based on compromises circulated by Latvia, which holds the EU's rotating presidency.

The draft law would strengthen "financial stability by protecting the deposit-taking business of the largest and most complex EU banks from potentially risky trading activities," according to a statement from the EU Council of Ministers, which represents national governments.

The updated plan would see the European Banking Authority, which brings together national regulators, issue "guidelines" on a "risk assessment" that supervisors should carry out when deciding how far to cap the amount of business different units of a separated bank can do with each other, according to a document seen by Bloomberg.

France had called for such a measure, warning that otherwise banks subject to EU structure rules could be placed at a disadvantage to exempted UK lenders. Still, the compromise blueprint doesn't fully incorporate other French requests relating to cooperation between different supervisors of the same bank.

Under the proposed EU rules, banks with annual trading activities of more than 100 billion euros (US$113 billion) would face added scrutiny from supervisors armed with a tool box of capital rules and separation powers.

Such banks would be assessed by supervisors on the basis of numerical data about trading activities as well as qualitative information on points such as how traders are managed and on the bank's remuneration policies. Exemptions would apply for banks with few retail deposits.

The law also would require banks that surpass certain thresholds to separate out proprietary trading from core activities. That rule would apply to around 30 banks according to European Commission data.

The draft law is the EU's latest bid to tackle risks posed by its biggest banks and to shield taxpayers from the costs of bailing them out if they fail. The European Commission, the EU's executive arm, made proposals in January 2014.

National officials have been holding talks since last year on how to redraft aspects of the plans, including on how to incorporate an exemption for UK banks already covered by the country's so-called Vickers rule.

"The text has changed substantially since the Commission's original proposal," Jonathan Hill, the member of the Commission responsible for financial services, said at today's meeting.

"Some of these changes have been positive and promote an approach which is more favourable to growth and jobs, in particular for example the changes made to market marking," he said. "There are other changes with which the Commission is less comfortable. In particular, we are concerned about the balance of powers between home and host authorities over separation decisions."

Friday's deal paves the way for compromise talks with the European Parliament on the final version of the law. Mr Hill said on Twitter that a final deal is possible by the end of this year.

BLOOMBERG