‘Anti-EU’ banking rules come under fire

Date: 06/06/02

By Peter Chapman

THE European Commission is stepping up the pressure on the US to get rid of 'discriminatory' rules that are costing EU banks with branches in America millions of dollars per year.

Aids to Trade Commissioner Pascal Lamy and his financial services counterpart Frits Bolkestein say the two policy chiefs are concerned about US laws forcing banks to set aside 5 of their liabilities to cover taxpayers' risks of footing the bill for liquidation costs.

They say Bolkestein, just back from a round of talks with US financial services officials, is 'seriously concerned by the requirement' and would 'pursue the matter further given the negative impact the requirement has on the competitiveness of EU banks'.

Lamy, they add, will table concerns on the issue at the World Trade Organisation (WTO) when a new round of talks aimed at liberalising services begins later this year.

The EU action follows a string of complaints from banks hit by the so-called 'asset pledge' requirements - particularly in the state of New York, where most choose to have branches.

They say the huge asset pledges are unnecessary because European banks are highly regulated and must ensure they have enough capital to operate safely. Worse, they say, US banks don't face the same rules when they set up branches abroad. 'The $35 billion of almost entirely unnecessary collateral is costing European and other major banks millions of dollars a year,' said Lawrence Uhlick, executive director and general counsel of the Wall Street-based Institute of International Bankers.

Uhlick said this is because it costs banks far more to raise the sums needed on the money markets than they earn on the low-yielding government treasury debt in which they were legally obliged to invest.

He said big EU financial institutions - such as Deutsche Bank or ABN AMRO - may have to lodge up to $1 billion dollars each. 'They create exorbitant cost and competitive disadvantages' for European banks, added Frédéric De Brouwer, legal head of the European Banking Federation.

Under the US regime banks have a choice to opt to meet federal asset pledge rules, currently being reformed by Congress.

But experts say switching between regulators is a timely and costly process. In any case, New York lobbyists are fighting moves to make the federal alternative less onerous in a bid to avoid hundreds of banks switching.

Lamy must tell the WTO by the end of June his priorities for negotiations aimed at beefing-up the so-called General Agreement on Trade in Services (GATS).

De Brouwer said the New York rules topped an 85-page list of trade barriers which the banking sector wants the European Commission to address at the GATS talks. But De Brouwer said European banks were actually teaming up with US rivals and banks from Canada and Hong Kong to voice common concerns elsewhere in the world.

The European Commission is stepping up the pressure on the US to get rid of 'discriminatory' rules that are costing EU banks with branches in America millions of dollars per year.