Denmark sees EU compromise on bank capital rules

European Union states are likely to reach a compromise on bank capital rules that would permit leeway to set some requirements on major banks independently while preserving a common approach, Denmark's economics minister said. The 27-country EU is turning a global accord on bank capital known as Basel III into EU law, but countries like Britain and Sweden want greater flexibility to impose higher capital requirements on banks locally when needed.
Others want a uniform rulebook. Denmark, which holds the rotating presidency of the EU for the first half of 2012, has proposed a compromise that would allow optional buffers of core, top quality capital, called a systemic risk buffers, to be created on top of a minimum buffer set by Basel III which is to be introduced from 2013.
Economics and Interior Minister Margrethe Vestager said in an interview that allowing nations to set core capital levels for banks without consulting others was an important matter for debate as it went against the principle of a single rule book. "I think there is a good case to say that countries could have national considerations when it comes to important financial institutions...so I think a compromise can be made, but I think it is important that there is some flexibility."
Such flexibility would apply to so-called SIFIs, systemically important financial institutions, deemed big enough to cause harm to the financial system if they ran into trouble. "We have made a compromise proposal which is part of the debate. I don't know if it's the beginning of the end of the debate, but it is a very clear signal from the presidency that we recognise the need for some flexibility." Vestager, who will chair an informal meeting of EU finance ministers in Copenhagen on March 30-31, said the debate had shifted in recent months.
"In the beginning, there was a very strong focus on one rule book, but after the debate on higher capital requirements for some of the banks - the debate we had in November - things have changed. "More people are preoccupied with flexibility and with members themselves being able to set higher requirements than the minimum that we have today," she said. She said the essence of the debate was whether customers should be allowed to choose to do business with a bank with high capital and pay for that or to choose a bank with less capital.
"I think they should have that choice," said Vestager, who is leader of the centrist Social Liberal Party, a junior partner in the Social Democrat-led coalition government. EU finance ministers at the Copenhagen informal Ecofin meeting are also expected to discuss a reform of regulations concerning credit rating agencies, including a plan to require countries to rotate among agencies.
"There is a debate about whether the market for credit rating is mature enough for the proposed rules of rotation, because it is going to be rather fast," Vestager said. The Commission proposed a radical blueprint last November to try to wrestle the ratings market away from the "Big Three": Moody's, Standard & Poor's and Fitch Ratings.