* Final version of bank capital text
* EBA gets sweeping powers
* Certainty could drive deal pipeline
LONDON, March 28 (IFR) - The compromise text of the European
Union's new bank regulation, CRD IV, published on Thursday,
appears to bring the market for bank capital closer to the end
of its long journey to structural certainty, but ducks tough
decisions on some aspects.
The compromise text is a harmonisation of Council of
Ministers and European Parliament revisions to the European
Commission's text implementing Basel III in Europe.
Basel III was published in draft form in December 2010,
while the Commission published its CRD IV draft in July 2011.
This final version delegates technical decision-making to
the European Banking Authority. The EBA has been working on the
details of its capital regime in parallel with the progress of
CRD IV, and is expected to publish its technical standards once
the final CRD IV hits the statute book in April.
The EBA has to fill in what happens when hybrids are written
back up after a temporary write down - once it has absorbed
losses, but when an institution returns to health. Details of
who gets the benefit of a bank's return to health have been
controversial, pitting equity against hybrid debt investors.
Other crucial decisions have been delayed for later
regulatory rounds. The definition of "point of non-viability"
-where a bank is not a viable institution, but is not strictly
insolvent - has been left for the European recovery and
resolution regime, expected in 2015. For subordinated debt, this
is a crucial point because this can determine when the
instruments take losses.
Capital structuring bankers seem divided on how this will
impact deal flow. One banker said he expected strong flow in the
second quarter, with some banks starting deal marketing even
before the rules have been through their final vote, aiming to
pull the trigger as soon as details were confirmed.
Another banker though said deals would be later, since banks
would wait for confirmation before starting structuring. Deals
could come in Q2, but would be more likely further out.
The compromise text leans more heavily on the Capital
Requirements Regulation (which must be implemented immediately)
than the Directive (where implementation is delegated to local
But the Regulation, in the latest draft, contains room for
national flexibility as well. All Additional Tier 1 (AT1) will
need a 5.125% ratio conversion trigger - but national
authorities are empowered to set their own triggers as well.
This may be to deal with the UK's desire for a
"super-equivalent" capital regime - though the UK was the only
country to vote against the Regulation in the Council of
The EBA has also been given other sweeping powers, including
drafting standards on capital of bank subsidiaries, what
qualifies as a liquid asset, results reporting frequency and
standards, calculation of mortgage risk weights, rating
agencies, which capital modelling should be used, margining, FX,
VaR, correlation trading, CVA risk, large exposures.
Many of these technical definitions, fortunately, are
already under consultation or drafted.
(Reporting by Owen Sanderson, editing by Alex Chambers, Gareth