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France and Italy move to counter EU push for tougher bank rules
http://www.ft.com/cms/s/0/3fd6e8b0-273c-11e6-8ba3-cdd781d02d89.html#ixzz4ALVLQaSI
France and Italy have moved to counter an EU push to toughen the rules governing the bloc’s largest banks, in the latest sign of mounting fears in some capitals that the bloc may be taking excessive steps as it seeks to prevent another financial crisis.
Concern in Rome and Paris has been sparked by interlocking EU and global rules aimed at making sure that banks issue enough subordinated debt that could be written down in the event of a financial crisis.
Elke König, chairwoman of the Single Resolution Board, the eurozone agency tasked with handling bank crises, has said the board may force some banks to have loss-absorbing reserves of “well above” 8 per cent of their liabilities — previously seen as the EU benchmark.
This has raised Franco-Italian fears that the EU’s biggest banks could effectively be forced to exceed a related international standard agreed last year by the G20.
In a joint paper seen by the FT, the two countries’ finance ministries call for a cap on how far eurozone bank regulators can exceed the international minimum rules, known as Total-Loss Absorbing Capacity(TLAC).
The TLAC rules have been hailed by Mark Carney, Bank of England governor, as heralding the end of an era of “too-big-to-fail” banks. They require banks to structure their balance sheets so a sizeable chunk of their liabilities can be easily written off, or converted into new equity, if they get into financial difficulties.
In their paper, submitted to other capitals and the European Commission in May, the two countries urge that any move to make banks exceed international norms should only happen in “exceptional” circumstances. Banks should also never be expected to have TLAC of more than 8 per cent, they argue, compared with the 6.75 per cent minimum set out in the international standard.
The wiping of billions of Novo Banco debt may mark a new era in which bank bondholders are no longer king
But some of the architects of the tougher EU bank rules adopted since the financial crisis say the Franco-Italian stance is a mistake. Sven Giegold, a German member of the European Parliament’s economic and monetary affairs committee, told the FT that the position amounted to “France and Italy doing their too-big-to-fail banks a favour . . . That is an unjustifiable risk to European taxpayers.”
France and Italy say that while they support the international standard, the risks of going further are manifold. According to the paper, going beyond an 8 per cent TLAC requirement “would result in additional funding costs for banks and could cause difficulty in a context where it is difficult to anticipate the depth of the market of European banks’ subordinated debt”.
They add that according to plans set out by the US Federal Reserve, US lenders will only face “very limited” extra requirements on top of the international minimum, potentially leaving EU banks at a disadvantage compared with rivals.
The TLAC standard, which is set to fully take effect in 2022, will cover a list of banks viewed by international regulators as posing a critical threat to the global financial system if they fail. The latest version of that list, published in November, contains 30 banks, including France’s BNP Paribas, Groupe BPCE, Groupe Crédit Agricole and Société Générale as well as Italy’s UniCredit. France has more banks on the list than any other EU nation except the UK.
The pushback against overly tough rules is part of a growing list of tensions over how much further the EU should go in developing its bank rules.
Wolfgang Schäuble, Germany’s finance minister, has clashed with Italy over his push for banks to take greater account of the risk of losses when they buy sovereign debt, something Rome fears would boost the cost of financing Italy’s deficit. At the same time, Germany is fiercely resistant to Brussels’ plans for a centralised eurozone scheme to guarantee bank deposits.
http://www.ft.com/cms/s/0/3fd6e8b0-273c-11e6-8ba3-cdd781d02d89.html#ixzz4ALVLQaSI
France and Italy have moved to counter an EU push to toughen the rules governing the bloc’s largest banks, in the latest sign of mounting fears in some capitals that the bloc may be taking excessive steps as it seeks to prevent another financial crisis.
Concern in Rome and Paris has been sparked by interlocking EU and global rules aimed at making sure that banks issue enough subordinated debt that could be written down in the event of a financial crisis.
Elke König, chairwoman of the Single Resolution Board, the eurozone agency tasked with handling bank crises, has said the board may force some banks to have loss-absorbing reserves of “well above” 8 per cent of their liabilities — previously seen as the EU benchmark.
This has raised Franco-Italian fears that the EU’s biggest banks could effectively be forced to exceed a related international standard agreed last year by the G20.
In a joint paper seen by the FT, the two countries’ finance ministries call for a cap on how far eurozone bank regulators can exceed the international minimum rules, known as Total-Loss Absorbing Capacity(TLAC).
The TLAC rules have been hailed by Mark Carney, Bank of England governor, as heralding the end of an era of “too-big-to-fail” banks. They require banks to structure their balance sheets so a sizeable chunk of their liabilities can be easily written off, or converted into new equity, if they get into financial difficulties.
In their paper, submitted to other capitals and the European Commission in May, the two countries urge that any move to make banks exceed international norms should only happen in “exceptional” circumstances. Banks should also never be expected to have TLAC of more than 8 per cent, they argue, compared with the 6.75 per cent minimum set out in the international standard.
The wiping of billions of Novo Banco debt may mark a new era in which bank bondholders are no longer king
But some of the architects of the tougher EU bank rules adopted since the financial crisis say the Franco-Italian stance is a mistake. Sven Giegold, a German member of the European Parliament’s economic and monetary affairs committee, told the FT that the position amounted to “France and Italy doing their too-big-to-fail banks a favour . . . That is an unjustifiable risk to European taxpayers.”
France and Italy say that while they support the international standard, the risks of going further are manifold. According to the paper, going beyond an 8 per cent TLAC requirement “would result in additional funding costs for banks and could cause difficulty in a context where it is difficult to anticipate the depth of the market of European banks’ subordinated debt”.
They add that according to plans set out by the US Federal Reserve, US lenders will only face “very limited” extra requirements on top of the international minimum, potentially leaving EU banks at a disadvantage compared with rivals.
The TLAC standard, which is set to fully take effect in 2022, will cover a list of banks viewed by international regulators as posing a critical threat to the global financial system if they fail. The latest version of that list, published in November, contains 30 banks, including France’s BNP Paribas, Groupe BPCE, Groupe Crédit Agricole and Société Générale as well as Italy’s UniCredit. France has more banks on the list than any other EU nation except the UK.
The pushback against overly tough rules is part of a growing list of tensions over how much further the EU should go in developing its bank rules.
Wolfgang Schäuble, Germany’s finance minister, has clashed with Italy over his push for banks to take greater account of the risk of losses when they buy sovereign debt, something Rome fears would boost the cost of financing Italy’s deficit. At the same time, Germany is fiercely resistant to Brussels’ plans for a centralised eurozone scheme to guarantee bank deposits.
