EU Will Miss January Deadline to Implement Basel Overhaul

The European Union said it will join the U.S. in missing next month’s deadline to legally implement an overhaul of Basel bank rules, as EU debate drags on over issues including banker bonuses, liquidity rules and leverage limits.

“The legal entry into force of CRD IV is no longer realistic for January 2013,” Stefaan De Rynck, spokesman for Michel Barnier, the EU’s financial services chief, said in Brussels today, referring to the bloc’s draft law to apply the Basel measures. Any delay should be as “short as possible,” he said.

The EU’s recognition that the January deadline is defunct follows calls from the European Banking Federation for a delay to stop lenders facing unnecessary costs. The missed deadline may also spare banks from having to apply proposed pay curbs to next year’s bonus pools.

EU governments and lawmakers have struggled to agree on how the bloc should apply the international rules, which were agreed on by the Basel Committee on Banking Supervision. The standards more than triple the core capital that lenders must hold to absorb losses, and were drawn up in response to the turmoil that followed the collapse of Lehman Brothers Holdings Inc. The so- called Basel III measures are scheduled to phase in from Jan. 1, 2013, to 2019.

Operational Requirements

“While a delay in implementing CRD IV is to be expected, it is important for firms planning their operational requirements that there is clarity as soon as possible on when this legislation is to be adopted,” Michael Lever, a managing director at the Association for Financial Markets in Europe, said in an e-mail.

Policymakers should seek “to promote a level playing field” internationally and “avoid competitive distortions,” Lever said.

AFME represents international lenders including Deutsche Bank AG (DBK), BNP Paribas SA (BNP), HSBC Holdings Plc (HSBA) and Royal Bank of Scotland Group Plc.

Finance ministers from the EU’s 27 nations will discuss tomorrow how negotiations on the draft law should advance, according to a note prepared by Cyprus, which holds the rotating presidency of the EU. Legislators from the European Parliament and Cypriot officials are also scheduled to meet next week for talks.

Political Deal

Even if a political deal is reached on the draft law by the end of the year, this won’t leave enough time for it to be formally adopted and codified as legislation, De Rynck said.

“If political agreement on the directive is not reached in the next two months, it is unlikely that any bonus cap provisions could be put in place ahead of the 2013 compensation round.” Jon Terry, a partner at PricewaterhouseCoopers LLP, said in an e-mail.

The EU’s recognition that it won’t meet January’s legal deadline follows an announcement last month by U.S. regulators that they also won’t begin applying Basel III on schedule.

The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency “do not expect that any of the proposed rules would become effective” at the start of next year, as they continue weighing views expressed during the comment period, they said in a joint statement.

A total of 10 of the Basel committee’s 27 nations, including Japan, have so-far “completed legislation and regulation” to begin phasing in Basel III starting on Jan. 1, Svein Andresen, secretary general of the Financial Stability Board, said in an e-mail.

Potential Losses

The EU is expected to complete its adoption of the measures “very shortly,” Andresen said, while U.S regulators also take their commitments “very seriously.”

Bank of England Governor Mervyn King signaled last week that U.K. banks may need to build up the capital they hold against potential losses, and asked regulators to report back by March on how lenders will comply.

Banks may need to make bigger provisions for future loan losses and the cost of regulatory fines and customer redress, King told reporters in London.

He said that risk-weightings may also be inappropriate, as he presented a report which said the capital ratios that they are used to calculate may be overstated by as much as 35 billion pounds ($56.4 billion) by the country’s four biggest banks.

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

To contact the editor responsible for this story: Christopher Scinta at cscinta@bloomberg.net