Chancellor George Osborne has refused to back European Commission proposals to implement new capital requirements on banks, claiming they are out of line with what was agreed at a global level and risk making him “look like an idiot”.
The European Commission’s proposals for the capital requirements directive IV, published in July, are supposed to implement the requirements agreed in Basel III. The commission’s proposals have looser requirements of what can be accepted as capital. They will also allow banks to use capital held by any insurance arms they own to count towards requirements for both the insurance and banking parts of their business, something Basel does not allow.
Speaking last week at a European Council meeting of finance ministers convened to develop its position on the directive, Osborne accused the European Commission of offering concessions to French and German banks, many of which have large insurance arms, that breached the global agreement.
Osborne said: “We are not implementing the Basel agreement, as anyone who will look at this text will be able to tell you. I am not prepared to go out there and say something that will make me look like an idiot five minutes later.”
The European Parliament has yet to finalise its position on CRD IV but hopes to do so by July. The three institutions will then thrash out the final rules in trialogue negotiations.
Under current proposals, CRD IV will require banks to hold 7 per cent core tier 1 capital.
In its final report, published last September, the Independent Commission on Banking recommended ringfenced retail banks be required to hold 10 per cent core tier 1 capital.
Speaking at the European Council meeting, Commissioner for internal market and services Michel Barnier said allowing the UK to go beyond CRD IV would put the single market at risk and amounts to “opting out” of the rules.
But Osborne said the UK’s demands are in line with those made by the European Central Bank for stricter capital standards.
Under a compromise to the commission’s proposals, tabled by the council, member states would have the ability to add on a 3 per cent capital buffer without the commission being able to veto the move. However, if other member states object, the European Banking Authority could be asked to take a binding decision.
The directive will be discussed again at the next Ecofin meeting on May 15.