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EU states split over tougher bank capital rules
* EU states still split over higher local capital buffers
* Divisions also over definition of bank's core capital
* Cross-party support in parliament for salary to bonus ratio
By Huw Jones
LONDON, April 19 (Reuters) - European Union states are split over how much leeway local supervisors should have to pile extra capital requirements on banks and keep markets stable, diplomats said on Thursday.
The bloc is trying to reach a deal on new bank capital rules and comply with a January 2013 deadline to start phasing in a globally agreed accord on bank capital known as Basel III.
Ambassadors from the bloc's 27 countries discussed the draft law on Thursday in a bid to find common ground for ministers to build on at a May 2 meeting.
"They were not close to agreement and there is a lot more work to do," one diplomat who attended the meeting in Brussels said.
The EU's Danish presidency told the meeting it still intended to hold the finance ministers' meeting next month, meaning it was aiming for a deal then, a second diplomat who attended the meeting said.
A British-led bloc of states wants flexibility to impose higher core capital buffers on local banks than the 7 percent minimum under the Basel III accord. Austria, France and Italy said on Thursday they wanted a more harmonised approach.
While the presidency had already proposed local supervisors could impose an extra "systemic risk buffer" of up to 3 percent without needing approval from the EU, Britain and others remain sceptical this will be enough.
On Thursday, the presidency suggested this extra buffer could be as much as 5 percent from 2015.
The Basel III accord is the world's core regulatory response to the 2008-09 financial crisis which saw several European governments having to shore up undercapitalised lenders with taxpayer money.
There were also splits over which definition of core capital to use, with Britain saying the EU should stick to Basel III, meaning only pure equity in practice. Other states want to include other types of instruments, as long as they meet a list of 14 criteria.
Britain's ambassador told the meeting that when it came to the crunch, common shares were all that investors trust, a diplomat said.
France, Germany and others wanted to push back by three years, to the start of 2018, the date for mandatory publishing of a bank's leverage ratio.
Member states need to reach a deal among themselves on the draft law so they can begin negotiations on a final text with the European Parliament.
The assembly wants to go a step further and introduce a new curb on bank bonuses in the law, something EU states have not yet discussed.
Parliamentary sources said there was cross-party support for a fixed salary to bonus ratio of 1:1 ahead of a vote by the assembly's economic affairs committee scheduled for next Wednesday when the ambassadors meet again.
This ratio would mean no bonus could be more than basic pay, a step some lawmakers say will simply lead to salaries being bumped up.
"The 1:1 ratio is in the current draft of the compromise and, I believe, it will stay there for the vote," said the committee's chairman, British Liberal MEP Sharon Bowles.
"Not everyone is universally happy with this ratio but it seems to command a majority," Bowles said. Some MEPs had pushed for a more draconian salary to bonus ratio of 1:0.75, while others wanted 1:2.
Lawmakers are also looking at whether to vote on another compromise to introduce a ratio between the highest and lowest pay in a bank.
Parliamentary sources said setting a tough ratio in committee was also tactical step ahead of negotiations with member states.
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