Why the Euro Area Is Resisting Cameron's Demand for Bank Shieldby and
Cameron's plan would allow different rules for London banks
Banks in France say proposal could risk financial stability
After almost four years trying to stitch together their banking markets, the 19 members of the euro area are reluctant to let David Cameron start carving out a special deal under the European Union’s financial rulebook.
Negotiators from the currency bloc, echoing concerns voiced by some of the region’s banking executives, fear that shielding U.K. lenders from EU rules could give them a competitive advantage and obstruct further integration between member states, according to a European official with knowledge of negotiations. They are also concerned the exemptions for U.K. banks would create barriers in the EU’s single market for financial services, the official said.
“We cannot accept two different sets of union rules -- one for the U.K. and for the City in particular, and the rest for the other member states,” Gianni Pittella, an Italian who leads the Socialist group in the European Parliament, said Tuesday after meeting Cameron in Brussels. “We will never accept any veto for the U.K. or special treatment for the City.’’
While the U.K. isn’t part of the euro-area banking union bound together by a single supervisor and resolution fund, it is subject to the European Union regulations that aim to safeguard financial stability and create a level playing field for lenders to compete. It was the European Banking Authority, the continental rulemaker, that imposed a cap on bonuses in 2015, to the chagrin of Chancellor George Osborne and bankers in London.
The text that Cameron agreed on with EU President Donald Tusk earlier this month allowed for European rules on financial stability to be applied in a “more uniform” manner to banks inside the single-currency area than those based in financial centers like London that are outside the euro zone.
“Different sets of union rules may have to be adopted in secondary law,” the text said.
Tusk is due to send a revised draft to national capitals on Wednesday night.
The existing proposal raises the possibility of EU members competing to offer the most favorable terms and institutions switching locations to take advantage, according to a letter Societe Generale Chief Executive Officer Frederic Oudea sent to President Hollande this month on behalf of the French Banking Federation. The British plan would potentially pose a threat to financial stability, according to Oudea.
“The possibility of having several sets of rules in the EU would deny the very existence of fair competition between financial institutions,” Oudea said. “The lessons of the financial crisis must not be forgotten.”
Progress in Paris
A spokesman for the German bank lobby said that they shared the concerns about exempting British lenders from European rules, though reports last week suggested negotiators have made some progress on that front. A spokesman for the Italian banking association declined to comment.
Euro nations want to ensure that any deal with Cameron this week won’t give the U.K. a veto on deeper integration within the currency union, a separate EU official said Tuesday. The official, who asked not to be named discussing the private negotiations, said Cameron gave assurances to Hollande this week that the U.K. has no desire to meddle in euro-area business and that concerns about a potential veto are close to being settled.
The remaining issues require finding language that will protect the U.K.’s rights without opening the door to a fragmentation of the European banking rules, the official said.