* EU finance ministers due to meet on May 2 in Brussels
* Britain at loggerheads with Germany over new rules
* Bank capital a key driver of lending decisions
By John O'Donnell and Ilona Wissenbach
BRUSSELS, April 4 EU countries are making a
fresh attempt to break the deadlock over new bank capital rules
and ministers are due to meet on May 2, officials and diplomats
said, accelerating efforts to find agreement on measures crucial
for lending and the economy.
The European Commission has proposed new standards for the
amount of capital banks across the 27-state European Union must
hold to cover risks.
But Britain is demanding the flexibility to impose higher
levels of capital on banks if necessary, putting it at
loggerheads with Germany and France, which favour a uniform
standard across Europe.
Clarifying the precise rules on capital, almost five years
after the start of the financial crisis that toppled lenders,
would remove some uncertainty for banks, already nervous about
lending as Europe slides into recession.
But in recent weeks, the complex debate has become bogged
down in a dispute that has pitted not only Europe's most
powerful countries against one another but also some of the
region's top institutions, including the European Central Bank.
Time is running out for the EU to finalise its rules that
will reshape post-crisis banking in the decades to come.
World leaders have agreed to start phasing in global bank
capital rules, known as Basel III, from next year and the EU
wants to finalise its framework within months.
Now Denmark, which as the current holder of the EU
presidency and responsible for brokering an agreement on such
issues, has taken the unusual step of calling an extra meeting
of finance ministers in Brussels on May 2 to break the logjam.
"They have more or less exhausted how far they can get at
the working group level," said one Danish diplomat, talking on
condition of anonymity. "It is political decisions that are
needed." Another EU diplomat confirmed the May 2 date.
Outlining the chief division, one European official said:
"The UK would like to push its comparative advantage that its
banks are better capitalised by securing the possibility to
impose more stringent capital rules.
"Others want to maintain a level playing field in the EU.
Germany is with France on this."
Critics say that allowing some countries to go it alone with
stricter standards would upset the EU's single market - French
or German corporates, for example, could shift deposits to a
British bank if its capital cushion was higher.
But Britain, whose banks are generally better capitalised
than their rivals in France and Germany, is insisting on
"It's vital that legislation properly implements
international standards in the EU, strengthens the European
banking system and safeguards the stability of the European
economy," said one British government source.
At the heart of the dispute, far more than the
technicalities of bank balance sheets, is a struggle for
influence and power in a Europe shaken by the worst financial
crisis in a generation.
Britain has been fighting to maintain its autonomy to
regulate the City of London, Europe's financial capital, as EU
countries move to centralise the supervision and regulation of
banking and finance.
Institutions such as the ECB, which has pumped in 1 trillion
euros ($1.33 trillion) of three-year loans to prop up banks in
the euro zone, also wants to maintain its influence.
Officials in Brussels are considering allowing countries
like Britain flexibility to impose higher standards of capital
on their banks but want a European authority such as the EU's
executive, the European Commission, to keep tabs on such moves.
In a letter to finance ministers and the European Commission
earlier this week, Mario Draghi the President of the European
Central Bank, said a Frankfurt-based risk-monitoring body, that
is dominated by the ECB, should have that job.
"Tightening calibrations imposes short-term costs also on
initiating Member States," he wrote. "That calls for... exchange
of information and coordination."
"Competence for this coordination lies with the ESRB
(European Systemic Risk Board) as the Union's macro-prudential
overseer," said Draghi who also chairs the body.
One European official said the meeting in May could
concentrate the minds of finance ministers, who gathered last
weekend in Copenhagen.
Bank capital received little attention as countries were
preoccupied with separate disputes about introducing a tax on
financial transactions and how to regulate credit rating