Parliament anger at Council pressure over banking rules

Date: 02/12/04

By Anna McLauchlin

TENSION is mounting between the EU's decision-making bodies over new banking rules on covering risk.

The Council of Ministers is putting pressure on MEPs to approve the proposed revision to the existing capital adequacy directive in a single reading after EU finance ministers have rubber-stamped the proposal on 7 December.

Council sources told European Voice that, if a majority of ministers approved the new rules as expected at the next Council of finance ministers, work would start immediately with the Parliament aimed at pushing the law through at a single Parliamentary reading in the first half of 2005.

But the MEP in charge of drafting the Parliament's view on the rules is warning that a single reading might not be possible, with important issues still to be resolved.

“The Council can say what it likes but we will make our own position,” said German centre-right deputy Alexander Radwan. “I cannot get [the proposal] through in a single reading if the Council [of Ministers] does not accept our amendments.”

“There is certainly a feeling of irritation within the Parliament that they are being rushed with this proposal,” said one source. Another commented: “It's a face-saving issue for the Dutch presidency.”

The new capital requirements directive (CRD) will set out new rules for banks to calculate their risks and the capital they must lay aside to cover them.

Part of the problem, banking sources say, is that many industry concerns about the Commission's original proposal still linger in the Dutch presidency's compromise. “It's going to fall to the Parliament to iron everything out,” one said.

At a Parliamentary hearing last week (22 November), German MEPs in particular voiced fears that small- and medium-sized enterprises (SMEs) would be punished by the proposal because of rising costs for smaller credit institutions.

A 2003 PriceWaterhouseCooper study found that the capital requirements for banks lending to SMEs would fall as a result of the CRD, but SME associations have yet to be reassured.

Radwan is worried that the proposal will put the EU banking sector at a competitive disadvantage to the US. According to the CRD, from the end of 2007 all EU banks will apply the 'Basel II' solvency rules, a more sophisticated version of the current 'Basel I' global standard. But only a few US companies will use Basel II and the rest will continue to apply Basel I, under which smaller firms have fewer capital constraints.

“The potential problem is that, in the US, higher risk companies will use smaller firms because they will recognize that they can get better pricing from them,” said a banking source. “We need to ensure that the difference in strategies doesn't create other issues for EU firms or customers.”

Other industry concerns include supervisory rules, under which banks with international operations will have to discuss their approach with the national regulators wherever they have subsidiaries.

Industry has warned that this will be too costly.

The proposal also changes the capital a bank must hold when moving money within the same group but across EU borders. “That means it might be cheaper for a German bank to lend money to a national subsidiary than to lend it to one in another EU member state, which runs contrary to the idea of a level playing field in the EU,” the source said.

Article reports that tension was mounting between the EU's decision-making bodies over new banking rules on covering risk. The Council of Ministers was putting pressure on MEPs to approve the proposed revision to the existing capital adequacy directive in a single reading after EU finance ministers have rubber-stamped the proposal on 7 December 2004. The new capital requirements directive (CRD) will set out new rules for banks to calculate their risks and the capital they must lay aside to cover them.