(REUTERS – 3RD MAY) European Union finance ministers spent more than 15 hours to try and reach a deal on forcing banks to set aside more capital to cushion future losses. But with Britain and Poland demanding more autonomy, they failed to reach a compromise acceptable by the 27 countries forming the European Union.
The EU’s 27 members are divided over how much capital banks should hold in future to protect themselves against the kind of losses which have brought down dozens of lenders in Europe and theUnited States, often requiring bailouts funded by taxpayers.
The EU has been trying to regulate its financial sector in the wake of the financial crisis that forced Spain,ireland and Portugal to request a EU/IMF bailout.
Regulating the financial sector is crucial for EU’s economy, Denmark economy minister Margrethe Vestager said. Denmark is currently holding the rotating EU’s presidency.
“If we have a solid, well-functioning, well-regulated financial sector then you will have a smooth working with businesses in order to enable them to have their credit lines, their loans, enable them to have the liquidity and capital that they need for, for job creation. And I think basically that was the motivation for each and every member countries in order to strike balances because everyone around the table today has had to give and take because otherwise you can’t reach a compromise,” Vestager told journalist in a late night briefing.
The question is about how much flexibility the EU want in the rules.
Britain’s finance minister George Osborne said the EU risked failing to implement the rules properly because too many countries wanted concessions for their own banks.
The EU executive, the European Commission, said the more flexibility there is the greater the need for controls.
“The more flexibility there is on the national level the more European coordination you need because the decision taken in one state can have immediate consequences just next door, in another member states,” EU commissioner for internal markets Michel Barnier said.
Britain and Sweden, which have two of the largest banking sectors in Europe relative to their economies, want the freedom to take extra steps to make banks safer.
But Germany and France wants capital standards to be more uniform across the EU.
“We want to find a solution that would be uniform across Europe. The financial sector is in such bad shape after last year’s crisis that we need common rules that would be manageable across the board. This is why it’s no small matter,” German finance minister Wolfgang Schaeuble said as he left the talks in the middle of the night.
Spain, whose banks have suffered huge losses inflicted by a property crash that is continuing unabated, said new rules were vital for handling future turmoil.
Standard & Poor’s cut the credit rating this week of 11 banks in Spain, which has sunk into its second recession in just over two years.
Madrid has told Spanish banks to raise almost 54 billion euros in capital this year on top of a sharp rise in provisions against losses since the property bubble burst in 2008.
“The Spanish government approved a decree to implement a reduction of the assets owned by banks, especially real estate assets. As a result, banks will have to register a huge decrease of those assets — 80% for ground properties, 75% for buildings under construction and 35% for finished buildings. This situation… What it means is that Spanish banks will have to provision between 53 and 54 million euros. This will require a huge efforts,” Spain finance minister Luis de Guindos said.
Many of the over 8,300 banks and financial institutions in Europe are struggling after a financial crisis that led to a sovereign debt crisis for countries like Greece, Portugal, Spain or Italy. Several of the 17 countries sharing the euro currency are now in recession.
Capital standards are currently set by the Basel Committee of regulators — know as Basel III rules. The EU wants to turn the standards into EU law which would come into force by the start of next year.