Barnier Says Bank Capital, Bonus Rule Deal May Be This Month

The European Union may reach a deal this month on a draft law to bolster capital rules for lenders and to curb banker bonuses, according to the EU’s financial services commissioner.

“We’re on the home straight now,” Michel Barnier told finance ministers at a meeting today in Luxembourg.

Barnier said he hoped a deal could be reached during the bloc’s next two negotiation meetings on the law, both of which take place in October. Bonus curbs are one of the remaining issues to be settled in the talks, he said.

The EU has struggled to agree on how to apply an international rulebook for banks, known as Basel III, that was drawn up by global regulators in the wake of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. The measures would more than triple the core reserves that lenders have to hold against insolvency, while also requiring banks to stockpile easy-to-sell assets to help them survive funding droughts.

The European Parliament is demanding a roster of changes to a draft EU implementing law for the Basel rules that was agreed on by the bloc’s finance ministers in May.

Alterations called for by legislators include expanding the rulebook to include a ban on bonuses that exceed bankers’ fixed pay, and adding more up-front detail to the liquidity rules.

‘Extremely Delicate’

“The negotiations are extremely delicate,” Vassos Shiarly, finance minister of Cyprus, which holds the rotating presidency of the EU, said during the discussion. “However further flexibility from all of us is needed and will be needed.”

Parliament lawmakers said this week that the assembly has scheduled a vote on the draft law in November, with a target for a deal to be reached by then.

Officials from Cyprus and parliament legislators will continue negotiations at meetings on Oct. 11 and Oct. 21.

Danish Finance Minister Margrethe Vestager warned at today’s meeting against any compromise with the parliament that would imperil the country’s mortgage market.

Danish lenders have campaigned against liquidity rules in the Basel accords that they say may threaten the country’s market for bank bonds linked to mortgage debt. The parliament has called for the EU to make a firm commitment to implement the standards, pending the results of an ongoing international review.

‘Irreversible effects’

The EU wants to avoid “irreversible effects” from the liquidity rules, Barnier said. The EU text should set out “very clear and rigorous principles while leaving open room for further work on detail,” he said.

Sweden’s finance minister Anders Borg said that a final deal must leave nations that have large banking systems with the freedom to impose even tougher rules on their lenders.

Sweden already has an agreement with other governments that it can impose higher capital requirements on its banks, Borg said. “We will not back down on that issue,” he said.

Shiarly said that a deal on the draft law was a prerequisite for proceeding with related plans for the euro area to hand supervisory powers to the European Central Bank.

“It’s important to have it adopted before the single supervisory mechanism enters into force,” Shiarly said after today’s meeting.

Cyprus is targeting a deal on the bank capital law by the end of this year, he said.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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