Risk capital directive lifted from limbo

By Anna McLauchlin

Date: 22/09/05

A plenary vote on the amount of risk capital that European banks will have to set aside is expected on Thursday (28 September) after European Parliament and Council of Ministers officials hammered out a compromise allowing MEPs to review any changes for a year after the law comes into force.

Under the compromise, a sunset clause would be written into the capital requirements directive. This would apply 'comitology' rules - where MEPs can review any updates to the proposal - for a year after the directive comes into force on 1 January 2007.

According to sources, MEPs were pushing for a four-year sunset clause but the Council whittled this down to two years from January 2006, the expected date of adoption.

The compromise marks the end of a fierce battle sparked by the French and Dutch 'No'-votes on the EU constitution, which would have given MEPs the right to review changes to legislation after they have been passed.

Fearing the constitution would not enter into force, MEPs were pushing for the same right in the capital requirements directive, but their attempts were being resisted by the Council, which is trying to agree on general comitology rules to apply to all sectors.

In an attempt to break the deadlock, the European Commission threatened to withdraw the proposal altogether if both sides could not come to an agreement.

European banks have welcomed the news. "Comitology is vital because it provides the flexibility needed for the directive to keep pace with developments in industry," said a spokesperson from the European Banking Federation.

The compromise also settles the fight over how much capital German savings banks should set aside when loaning money to each other and the criteria for banks to get preferential treatment for mortgage- backed securities.

The Parliament's conference of presidents will make a final decision today (22 September) on whether the vote goes to plenary on Wednesday.

Anticipation of a vote at the European Parliament on 28 September 2005 on the amount of risk capital that European banks would have to set aside. A compromise had been found between the European Parliament and the Council allowing MEPs to review any changes for a year after the law comes into force. Under the compromise, a sunset clause would be written into the capital requirements directive. This would apply 'comitology' rules - where MEPs can review any updates to the proposal - for a year after the directive comes into force on 1 January 2007.