Europe’s financial regulation chief has warned that he is prepared to reject international plans to toughen capital requirements for banks, in a sign of the growing rift between the EU and US over how to prevent another financial crisis.
Valdis Dombrovskis, a vice-president of the European Commission in charge of finance and economic policy, said that Brussels would not accept any reforms that “lead to a significant increase in the overall capital requirements shouldered by Europe’s banking sector”. He added that current plans being considered by global regulators need work in “a number of areas”.
European banks have come under increased financial market pressure in recent weeks, with Deutsche Bank and Monte dei Paschi in particular focus.
On Wednesday, the German government was forced to deny local press reports that it was working on a rescue package for Deutsche, which has seen its share price drop more than 50 per cent this year.
Earlier this month, the chairman of Monte dei Paschi — which came last in the most recent European bank stress tests — resigned following a row over a €5bn capital raising.
Andrea Enria, chairman of the European Banking Authority — which carried out the stress tests, — said at a conference on Wednesday that European governments should consider whether public funds “could be part of the ingredients” deployed to help clean up bank balance sheets.
Mr Dombrovskis’ warning brings out into the open a fight that has been brewing in the Basel Committee on Banking Supervision, one of the global bodies for developing financial rules.
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The split centres on a drive by some nations, including the US and Switzerland, to restrain the freedom banks have to measure the riskiness of their investments, and so calculate the amount of loss-absorbing capital they need.
US regulators argue that the step is essential to avoid gaming of the system by banks. European banks, however, have argued that because of transatlantic differences in the mortgage market, and in accounting rules, they would end up being the prime target of the measure.
The Basel talks have become a battleground in a wider debate over whether European banks have enough capital. People involved in the two meetings of the Basel committee this month said that the group has become “polarised” on key parts of the reform.