Banks in EU face steep fines
Source: Agencies |
July 21, 2011, Thursday
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BANKS in the European Union could face fines of up to 10 percent of turnover if they fail to comply with tougher capital and liquidity rules, the bloc's financial services chief said yesterday.
Michel Barnier, the EU's internal market commissioner, unveiled draft laws in Brussels to implement the new global Basel III accord which will force banks to hold more and better quality capital from 2013 in a bid to keep taxpayers off the hook in a future financial crisis.
The draft measures largely mirror Basel III, which was approved by leaders of the top 20 economies (Group of 20) last November such as a minimum core equity capital ratio equivalent to 7 percent of a bank's riskier assets.
But it goes further in some cases by introducing tougher sanctions, ways to dilute the influence of credit ratings, and improvements to corporate governance, such as requiring boards to consider more female members and introduce whistle-blowing programs.
"If institutions breach EU requirements, the proposal will ensure that all supervisors can apply sanctions that are truly dissuasive, but also effective and proportionate," Barnier said in a briefing note.
"For example, administrative fines of up to 10 percent of an institution's annual turnover, or temporary bans on members of the institution's management body."
The fines would apply to unauthorized banking services, failing to notify authorities when acquiring holdings above a certain threshold, not meeting governance requirements, going beyond limits on exposures to other banks, failing to meet liquidity rules and falling short on reporting data to supervisors.
Barnier stuck to his plan for making the Basel standards fixed in EU law, meaning that member states can only require banks to hold extra capital under a limited set of circumstances.
He said he wants to create a "single rulebook" so that the same standards are applied in every corner of the EU, a step banks will welcome.
"Higher levels of capital requirements in one member state would also distort competition and encourage regulatory arbitrage," he said.
EU states and the European Parliament have the final say on Barnier's draft measures and some changes are likely.
Barnier says he wants banks to rely less on external ratings from agencies such as Moody's, Standard & Poor's and Fitch for calculating regulatory capital buffers.
This stops short of a more draconian US law which prohibits banks for relying on external ratings at all, which has proved difficult to implement in practice.
The EU measure also leaves the door open to some banks in Germany and elsewhere to include "silent participations" - a form of hybrid debt - in their core capital calculations but only if of high enough quality.
This month's stress test of EU banks barred the inclusion of most silent participations amid doubts this form of capital would be able to absorb losses fast enough in a crisis - sparking a pullout from the test by German landesbank Helaba.
Michel Barnier, the EU's internal market commissioner, unveiled draft laws in Brussels to implement the new global Basel III accord which will force banks to hold more and better quality capital from 2013 in a bid to keep taxpayers off the hook in a future financial crisis.
The draft measures largely mirror Basel III, which was approved by leaders of the top 20 economies (Group of 20) last November such as a minimum core equity capital ratio equivalent to 7 percent of a bank's riskier assets.
But it goes further in some cases by introducing tougher sanctions, ways to dilute the influence of credit ratings, and improvements to corporate governance, such as requiring boards to consider more female members and introduce whistle-blowing programs.
"If institutions breach EU requirements, the proposal will ensure that all supervisors can apply sanctions that are truly dissuasive, but also effective and proportionate," Barnier said in a briefing note.
"For example, administrative fines of up to 10 percent of an institution's annual turnover, or temporary bans on members of the institution's management body."
The fines would apply to unauthorized banking services, failing to notify authorities when acquiring holdings above a certain threshold, not meeting governance requirements, going beyond limits on exposures to other banks, failing to meet liquidity rules and falling short on reporting data to supervisors.
Barnier stuck to his plan for making the Basel standards fixed in EU law, meaning that member states can only require banks to hold extra capital under a limited set of circumstances.
He said he wants to create a "single rulebook" so that the same standards are applied in every corner of the EU, a step banks will welcome.
"Higher levels of capital requirements in one member state would also distort competition and encourage regulatory arbitrage," he said.
EU states and the European Parliament have the final say on Barnier's draft measures and some changes are likely.
Barnier says he wants banks to rely less on external ratings from agencies such as Moody's, Standard & Poor's and Fitch for calculating regulatory capital buffers.
This stops short of a more draconian US law which prohibits banks for relying on external ratings at all, which has proved difficult to implement in practice.
The EU measure also leaves the door open to some banks in Germany and elsewhere to include "silent participations" - a form of hybrid debt - in their core capital calculations but only if of high enough quality.
This month's stress test of EU banks barred the inclusion of most silent participations amid doubts this form of capital would be able to absorb losses fast enough in a crisis - sparking a pullout from the test by German landesbank Helaba.
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