(Adds comment from secretary general of the Basel Committee)
* EU lawmakers, member states struggle to break deadlock on
* EU's Barnier tells Fed's Bernanke of concern at U.S. delay
* Postponement threatens to undermine global capital accord
By John O'Donnell
BRUSSELS, Nov 27 Europe is preparing to follow
the United States in delaying the introduction of stricter rules
on bank capital while it lobbies for a rethink of the U.S.
stance, EU sources said.
The delay could push back the start of global rules in
Europe, known as Basel III, by about six months, or even longer
if diplomats and lawmakers fail to break a deadlock on a law
meant to be phased in from the start of 2013.
On the surface, the postponement would be good news for
small banks in particular, because it would give them a chance
to adapt to a complex new law still being finalised by EU member
countries and the European Parliament.
But any hold-up would compound uncertainty after the U.S.
decision to abandon the January 2013 target, undermining the
global Basel accord and promised capital reforms to prevent a
re-run of the financial crisis.
"Whatever happens, the new law cannot become effective on
January 1," said one EU official, who spoke on condition of
anonymity. "The middle of the year would be a realistic
The secretary general of the Basel Committee, which designed
the new regime, insisted on Tuesday that its launch would go
ahead as planned, but conceded that some countries would miss
"A large number of jurisdictions have everything in place
and are ready to go on Jan. 1, 2013," Wayne Byres told Reuters
on the sidelines of a financial sector conference in Abu Dhabi.
"We are persisting with the date, and those not ready on
Jan. 1 can be ready thereafter."
IN PRACTICAL TERMS, IMPOSSIBLE
Brussels is worried that the decision in Washington to
ignore the deadline will put EU banks at a disadvantage against
U.S. rivals allowed to put off applying its strict standards.
The delay has caused concern in the EU's executive European
Commission. Michel Barnier, the commissioner in charge of
regulating finance, has written to U.S. Federal Reserve Chairman
Ben Bernanke to express his worries, officials said.
In his letter, a copy of which was also sent to U.S.
Treasury Secretary Timothy Geithner, Barnier pushes for clarity
on when Washington will introduce the capital rules and flags
the risks if the United States and Europe take different tacks,
people familiar with the matter told Reuters.
"The U.S. is dragging its feet, which is not fair," one of
the officials said.
But privately, many officials in Brussels concede that the
same is likely to happen in the 27-member European Union and
that the bloc will also be forced to delay implementation,
marking a further setback in efforts to reform finance.
By standardising EU capital rules, the law would also make
it easier for the European Central Bank to supervise lenders,
the first step towards a banking union - a cornerstone of closer
fiscal integration in the euro single currency area.
"In practical terms, it seems to be impossible to do
something that is implemented by January 1, but officially that
hasn't been said," a senior lawmaker in the European Parliament
Banks have been pushing for a delay of the new rules until
the beginning of 2014, arguing that the U.S. move would put them
at a disadvantage.
The global accord hatched by central bankers and regulators
meeting in Basel, Switzerland, demands that lenders set aside
more capital to cover losses such as unpaid loans.
It also lays down higher standards in determining what kind
of assets a bank can use to meet these capital levels. For
example, a limit on the use of hybrid debt that banks previously
relied on, but which unravelled in the crisis.
The European Union is struggling to agree on many aspects of
the package, including what kinds of assets can be considered
liquid, or available at short notice.
The European Parliament is also demanding tough limits on
bonus payouts in the EU law that introduces Basel; a demand that
has irritated Britain.
After months of tortuous, often late-night negotiations
between the parliament and EU member states, issues such as
bonus caps remain unresolved and agreement on the broader rules
has yet to be reached.
"There is a general feeling in the context of the euro zone
crisis that not only is there a democratic deficit, but also an
executive deficit. The institutions are just not able to take
decisions," said Nicolas Veron of Brussels think tank Bruegel.
"We see that in the crisis, with Greece and the euro zone,
but also on issues such as Basel," he said.
The drawn-out process of signing off a law has also
frustrated regulators. "This is not a good situation," said one.
"They are holding themselves up for ridicule if they don't adapt
(Additional reporting by Stanley Carvalho in Abu Dhabi; Editing
by Rex Merrifield and David Goodman)