EU nears deal on banking capital rules, risk of delay over Italy

By Francesco Guarascio

BRUSSELS (Reuters) – European Union finance ministers are likely to agree on Friday to new banking capital rules in a major step toward enhancing EU financial stability, but the deal could be delayed because Italy’s political crisis, EU officials said.

The potential delay could be seen as a first sign of how Italy’s prolonged crisis and its emerging eurosceptic government could further slow the bloc’s already sluggish reform process.

An agreement on the banking reform would come after 18 months of heated debates among the 28 EU governments on how to apply new global bank capital rules that overhauled financial regulations after the 2007-2009 global crisis.

Countries have battled for months over the level of capital buffers that banks should hold against risk of failure and the powers of the EU agency for troubled banks, the Single Resolution Board, to enforce these capital requirements.

But the major hurdles have now been cleared and a deal could be finalised on Friday when EU finance ministers gather in Brussels for a regular meeting, three European officials said.

Germany and France, the two main economies of the euro zone, are ready to back the main elements of a compromise put forward by the Bulgarian presidency of the EU, officials said.

The deal would give the SRB a clearer mandate in setting banks’ capital buffers, known as Minimum Requirement for own funds and Eligible Liabilities (MREL).

But the finalization of the agreement could be postponed because Italy, the euro zone’s third largest economy, might not be able to endorse the deal, as the country is in the process of forming a government, one EU official said.

An agreement on the banking package requires a qualified majority of EU member states and could be sealed even if Italy opposed it. But, given the importance of the proposals, the Bulgarian presidency could opt for a postponement of the vote, as it did at a meeting in March to wait for the swearing-in of the new German government.

The possible delay would however highlight EU discomfort at dealing with a new Italian government of the anti-establishment 5-Star and the far-right League dedicated to a high-spending program that calls into question crucial fiscal and banking rules of the European Union.

The decision on whether sealing or delaying the deal will be made on Friday after a public debate among EU finance ministers, a spokeswoman for the EU’s current Bulgarian presidency said.

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