24 November 2016

Financial Times: Berlin and Paris on collision course over EU banking rules

Berlin is anxious about a package of reforms unveiled by the European Commission, notably its proposal for how Europe should apply an international standard for dealing with a large bank when it fails.

Senior German officials are concerned that aspects of the reforms would overly constrain bank supervisors. They want to preserve the freedom for supervisors to demand buffers that go beyond agreed international minimum standards.

The row is set to deepen an already sizeable split between national governments over the future direction of Europe’s banking union, an ambitious but incomplete integration project agreed at the height of the eurozone debt crisis to restore confidence.

Wolfgang Schäuble, Germany’s finance minister, has argued that further steps to build the banking union should be taken only once Europe has agreed on a tough regime of measures to reduce risks in its banks. However, Berlin thinks the Brussels package falls short in key areas.

Berlin’s stance over the rule, known as total loss absorbing capacity, or TLAC, is sharply at odds with that of Paris and Rome, which have pushed for inbuilt curbs on overzealous authorities to avoid European financial groups being put at a competitive disadvantage.

In his proposals, Valdis Dombrovskis, the European Commission vice-president responsible for financial policy, said authorities should be able to set tougher rules only if they could demonstrate that the extra requirements were “justified, necessary and proportionate”.

Within the eurozone, this would rein in the Single Resolution Board, or SRB, the currency area’s agency for handling failed banks, which was established last year.

The TLAC rule will force large banks to issue more securities that can be easily written off if they fail, so reducing any need for a taxpayer bailout. Central bankers, such as Mario Draghi of the European Central Bank and the Bank of England’s Mark Carney, have hailed the measure as a step towards ending the problem of institutions being “too big to fail”.

Full article on Financial Times (subscription required)

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