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Agreement had seemed likely from the start, as UK Chancellor of the Exchequer, George Osborne—who had refused to sign off on a first amended draft at a bad-tempered meeting two weeks ago—signalled that he would accept the new draft, mainly because it would allow the UK to implement its planned reforms of the banking sector, outlined last year in the Vickers Report.
Under the new draft, countries will no longer have to notify European authorities before applying additional capital requirements to local banks. It also allows Member States to intervene more actively when it thinks that banks' internal models don't match the actual risks involved in certain activities. And it lets Member States tighten controls on large exposures to individual counterparties or asset classes.
European Central Bank Vice-President, Vitor Manuel Ribeiro Constâncio, told the meeting that the balance of the new draft "perhaps has tilted a little bit too much in the direction of too much flexibility".
His sentiments were shared by Andrea Enria, head of the European Banking Authority, who asked for the EBA to have ongoing rights to monitor how Member States are defining capital. Mr Enria was also disappointed by the greater flexibility allowed on risk weights. "One of the major concerns out there in the markets is that risk weights are not consistent", Mr. Enria said. "Giving more flexibility to change the risk weights is a source of concern for us."
The EU Council, which represents the governments of the Member States, will use the text agreed on Tuesday as a basis for final negotiations with the European Parliament and Commission, which will mediate between the two, over the final wording of the Directive.