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Barnier Says EU May Broker Deal on Basel III Bank Law Next Week

European Union Financial Services Chief Michel Barnier
European Union financial services chief Michel Barnier, left, speaks during a television interview at a meeting of European Union finance ministers at the European Council headquarters in Brussels. Photographer: Jock Fistick/Bloomberg

Michel Barnier, the European Union’s financial services chief, said EU lawmakers and governments may reach an accord next week on how to implement Basel III bank capital and liquidity rules.

The law, held up amid clashes on banker bonuses, leverage limits and liquidity ratios, should take effect “as soon as possible in 2013,” Barnier said in a prepared remarks for a meeting of finance ministers in Brussels today.

Negotiators at talks on Dec. 11 and Dec. 13 should be given “enough latitude” to “rapidly reach a compromise solution,” Barnier said. As part of an agreement, ministers should back calls from the European Parliament for binding limits on the size of banker bonuses compared to their fixed pay, he said.

EU governments and members of the assembly 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.

Even with a political deal next week, the EU is destined to join the U.S. in missing January’s global deadline to implement Basel III, Barnier’s spokesman said yesterday.

As part of its Basel law, the EU may impose a binding indebtedness limit, known as a leverage ratio, on its banks from 2018, Barnier said today. The EU is also planning to introduce liquidity rules for lenders once work on them has been completed by the Basel committee.

Barnier warned ministers against seeking too much leeway to set tougher capital rules for their banks than foreseen in the draft EU law. This push for flexibility, which has been made by nations including the U.K. and Sweden, raises “very serious legal problems,” he said.

A final deal on the rules will probably give the European Banking Authority “solid” powers to police which kinds of securities banks can count toward their core capital, Barnier said.

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