EU finance ministers signal resistance to new banking rules

in Luxembourg European Union finance ministers signalled their resistance to new international banking rules which may require banks to hold more capital amid concerns about the impact of such policies on the European banking sector.

Meeting for the second day in Luxembourg on Tuesday, EU finance ministers discussed new rules being devised by an international supervisory group amid fears that they could put onerous capital requirements on banks.

Last month, Latvian EU commissioner Valdis Dombrovskis strongly criticised the new proposals that are under discussion by the Basel Committee – the body responsible for formulating global standards on banking – prompting Tuesday's discussion at the Ecofin meeting.

France and Germany are leading opposition to the proposals to overhaul the internal models used by banks to calculate risk.

Nine EU countries are members of the 27-strong Basel Committee. The European Central Bank is also a member, while the European Commission has an advisory role. The new proposals are expected to be finalised by the end of the year.

Speaking after Tuesday's Ecofin meeting, Slovak finance minister Peter Kazimir, whose country holds the rotating EU presidency, said the EU was united in its views on the new Basel rules. He said it was important that "the design and calibration of this vital post crisis banking reform is done in a smart way that we do not shoot ourselves in the foot."

Calculating risk

But Eurogroup chairman and Dutch finance minister

Jeroen Dijsselbloem

appeared to suggest that Europe may need to accept some increase in capital requirements, noting that changes to the way bank’s internally calculate risk should be welcomed. It was important “we don’t continue to conceal risk,” he said, “so I can’t rule out that the consequence could be that individual banks in Europe will face higher capital requirements.”

France reiterated its opposition to the proposed changes. "We are in favour of Basel III [the third Basel Accord – a voluntary banking framework whose implementation has been extended until March 2018], but we think it is unhelpful, even dangerous, to want to add layer upon layer of obligations on banks, in particular on European banks," French finance minister Michel Sapin said.

Trouble at Germany's biggest lender Deutsche Bank and Italy's continuing problem with non-performing loans in its banking sector have highlighted problems in Europe's banking sector which is struggling with profitability in a low-interest environment.

Tax rules

Separately, a subset of European countries reported progress on a new Financial Transactions Tax (FTT) which has been under discussion by ten member states since 2012. Following a meeting on Monday evening led by Austria, ministers tasked the European Commission with drawing-up a new legal text on the proposal. “A final agreement has never been closer,” French EU commissioner

Pierre Moscovici

said after the meeting.

In 2012, 10 EU countries decided to proceed with a proposal for a common European financial transactions tax despite opposition from a majority of member states. Under the EU’s so-called enhanced co-operation model, a group of at least nine countries can proceed with a proposal on a voluntary basis.

The FTT proposes a 0.1 per cent tax on share and bond transactions and a level of 0.01 per cent on derivatives. France and Austria had been leading calls for the proposal in the wake of the financial crisis.

Finance ministers also discussed the issue of tax transparency in the wake of the Panama Papers scandal, committing to prevent the “large-scale concealment of funds, which hinders efforts to clamp down on tax evasion, money laundering and terrorist financing.”

Ireland, which was represented at ambassadorial level due to the budget, was also one of a number of countries which raised reservations about VAT-related aspects of a new draft directive that aims to tackle fraud by means of criminal law, believing that tax matters should be confined to tax-specific EU files.