EU sees step-by-step approach to bank trading capital rules

By Huw Jones

BRUSSELS (Reuters) – New global standards on how much capital banks must hold against trading risks won’t be fully inserted into European Union law for the time being, a senior European Commission official said on Wednesday.

The bloc is approving a package of rules to complete its banking union, whereby lenders comply with the same rulebook to avoid becoming undercapitalized and depending on taxpayers for a bailout if they go bust.

The package was proposed by the European Commission in November 2016, and includes putting into EU law global trading book capital standards drawn up by the international Basel Committee.

However, since 2016 Basel has begun making changes to its so-called fundamental review of the trading book (FRTB), a process it won’t complete for months, leaving the bloc faced with applying the out-of-date version in its package.

“If Europe frontloads implementation of the outdated 2016 standard it would be an unnecessary burden for all banks,” Pierre Darbre, a French diplomat told a QED conference in Brussels.

European banks want the FRTB put on hold, but a senior European Commission official said a compromise will be needed.

Elements that Basel is not changing could be put into EU law now, with yet-to-be agreed aspects added later.

“Taking the standard completely out at this stage of the negotiations is not a very realistic way forward,” said Martin Merlin, a director in the Commission’s financial services unit

“It would not be very credible also in connection with finalization of the banking union, as it could be seen as a watering down of the package.”

The EU executive will propose further bank capital legislation in 2020 and this could include aspects of the FRTB that should be finalised by then, Merlin said.

Banking regulators could also flesh out remaining elements of the FRTB once they have been finalised, he said.

Gonzalo Gasos, head of banking supervision at the European Banking Federation, said the FRTB should be put on hold.

“We have enough regulation so why should we frontload something that is coming in the next 10 months from Basel,” Gasos said.

EU states and the European Parliament have the final say on the banking rules package and are under heavy pressure from the Commission to approve it before parliament goes to the polls in summer next year.

“It is very urgent that we give a sense to the market and to the banking sector as to when the banking union will be completed and what it will look like,” Merlin said.

“We believe in the Commission there is a real issue of credibility here.”

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