EU bank capital deal sought

EU finance ministers faced a struggle to reach a deal to force banks to set aside more capital to cushion future losses, with Germany warning an immediate agreement looked unlikely and Britain demanding stricter rules than those on offer.

The 27 EU members are divided over how much capital lenders should have to set aside to cover risks, one of the central questions raised by a five-year-long financial crisis that toppled dozens of banks in Europe and the United States.

"I don't think we will come to a conclusion today," German finance minister Wolfgang Schäuble said shortly before the finance ministers' meeting today, adding that the issue was complex.

"If we have too little capital, then the banks carry risks for the financial system. In order to stabilise the financial system, which is something that we are successfully working on, the banks must have more capital."

Denmark, holder of the EU's six-month rotating presidency, has stepped up efforts to find a deal and Mr Schäuble said he believed agreement was possible in the coming months.

Standard & Poor's cut the credit rating of 11 Spanish banks earlier in the week, as Spain, the euro zone's fourth-largest economy, sank into a second recession in just over two years.

Spain's economy minister Luis de Guindos said bank capital rules were of critical importance for Madrid. "We need to guarantee to a level of quality capital that is enough to face future crises," he said as he arrived at the talks. "At this time of financial crisis, we need to clear up all doubts about the quality of European banks."

Denmark wants to find consensus among countries about new capital rules and strike an accord with the European Parliament by the end of June.

Its aim is to have a deal, translating higher capital standards set by the Basel Committee of regulators into EU law, and turn it into reality for banks by the start of next year.

British officials see the meeting as the first of several to discuss the issue. London is cautious about the new EU capital regime and does not want to sign away too much national control over its banks.

"The simple fact is that ministers haven't discussed this legislation in detail yet and we're likely to need more discussion before an agreement can be finalised," said one British diplomat, speaking before the meeting. "You can't ignore the reality that the costs of getting this wrong are profound."

The next meeting of finance ministers is set for May 15th.

Europe's capital regime, when decided, will be closely studied in Washington and may influence how policy makers there interpret the Basel standards.

EU countries have yet to signal whether they will back a push by the European Parliament to use the new capital law to curb pay, so a bankers' bonus could not exceed his salary.

Reuters