EU Aims For New Bank Capital Rules

Banking Regulation

The European Commission is on track to debut a number of provisions as early as Wednesday (Nov. 23) that would “mirror” rules in place governing US banks and would serve to “ring fence” foreign bank capital, the Financial Times reported.

Those provisions, said the site, would, if codified, mandate that banks would have to bolster capital positions, with liquidity enhanced as well, tied to their EU operations. The idea is that European units can be wound down if needed.

The Financial Times reported that EU officials have maintained the proposed bank capital rules are not the result of the surprise Brexit vote seen earlier this year. The proposals, however, would mean that London might not keep its status as a financial hub operating outside the U.S. For the U.K. banks, the onus would be to build separate capital pools post-Brexit. Various holding companies established in different parts of the EU (Frankfurt, as an example) would draw capital and workers from London.

The proposals are contained in financial reforms that have been pushed by Valdis Dombrovskis, who is the EU vice president overseeing the financial services arena, and the overarching theme, said the Financial Times, is to prevent banks from being “too big to fail.” That would come through a measure that is titled “total loss absorbing capacity,” which means funding cushions must come through debt and equity activities, and which can sit on balance sheets at the ready to deal with banking crises. The proposals would impact more than a dozen banks, and the Financial Times noted that requirements would extend to embrace units of banks that are “globally systemic” or that have assets of at least €30 billion.


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