* EU compromise proposes new systemic bank buffer
* New buffer would give UK room to ring-fence retail arms
* EU compromise ditches govt debt zero risk weight review
By Huw Jones
LONDON, March 2 Local supervisors would
have powers to force banks to hold extra capital on top of
globally agreed minimums, according to a draft compromise from
EU president Denmark that would allow Britain to strengthen
safeguards for retail lenders.
The EU is tightening up rules to make banks safer, in a bid
to avoid a repeat of the last financial crisis when taxpayers
had to bail out failing lenders.
Denmark is proposing the creation of a new, optional buffer
of core, top quality capital of up to 3 percent, called a
systemic risk buffer, which would sit on top of the 7 percent
minimum buffer set by the global Basel III accord being
introduced from 2013.
"Each member state may introduce a systemic risk buffer of
common equity tier 1 for the banking sector or one or more
subsets of the sector," the "package of flexibility" compromise
authored by Denmark said.
The bloc's member states and European Parliament are in the
middle of approving a draft law that turns Basel III into
binding EU rules.
The law, however, worries countries like Britain and Sweden
that want room to impose higher capital requirements on banks
locally when needed.
"Following discussions in the (EU) council working group it
has become clear that further flexibility is needed," the Danish
Britain's supervisors already force local lenders like
Barclays, HSBC, Lloyds and Royal Bank
of Scotland to hold 10 percent or more in capital.
Banking officials say if adopted, the compromise would
ensure there was no barrier to Britain introducing its "Vickers"
This involves forcing the retail arms of banks to be ring
fenced with extra core capital, taking the total to 10 percent,
which includes the Basel III 7 percent minimum, by 2019.
Basel contains the option of an extra "counter cyclical"
buffer that can be made mandatory if credit markets become
"We already have buffers on buffers. I think it could be to
allow Britain to deal with its Vickers plan," a senior European
banking industry official said.
NO ZERO RISK REVIEW
The bloc's financial services chief Michel Barnier has said
that the draft law he authored gives supervisors leeway to top
up capital requirements. The Danish compromise would hard wire
this reassurance into law.
Barnier and the European Banking Authority are pushing to
create a "single rulebook" so that banks in all 27 member states
comply with the same rules in a consistent way.
Basel III also introduces mandatory liquidity buffers for
banks and a leverage ratio to rein in excessive use of debt to
extend lending. The Danish compromise widens the range of assets
that can be included in liquidity buffers.
If the EU goes ahead with significant deviations from Basel
III, it faces a challenge by the global body that devised them,
the Basel Committee on Banking Supervision whose accord was
given full backing by world leaders.
The Danish compromise also removes an earlier proposal to
review the zero "risk weight" attached to a bank's holdings of
sovereign debt for calculating safety buffers.
EU lawmakers want this reviewed, saying the bloc's bailouts
of Ireland, Greece and Portugal show that not all sovereign debt