* EU faces summer deadline to agree capital rules
* Countries divided as Britain, Sweden push for autonomy
* Spanish banks grapple with property slump, recession
By Robin Emmott and John O'Donnell
BRUSSELS, May 2 EU finance ministers will
attempt to reach a deal to force European banks to set aside
more capital to cushion losses on Wednesday, with Britain and
Sweden demanding even stricter rules than those on the table.
The EU's 27 members are divided over how much capital
lenders should have to set aside to cover risks, one of the
central questions raised by a five-year-long financial crisis
that toppled dozens of banks in Europe and the United States.
Denmark, holder of the bloc's six-month rotating presidency,
has stepped up efforts to find a deal.
"This is a very important lesson from the crisis. I see a
strong willingness to compromise but the countries have very
different opinions," Denmark's economic affairs minister,
Margrethe Vestager, said.
The meeting takes place as many of Europe's banks continue
Standard & Poor's cut the credit rating of 11 Spanish banks
earlier in the week, as Spain, the euro zone's fourth largest
economy, sunk into a second recession in just over two years.
Spain's Central Bank is consulting experts on setting up a
holding company to value and sell off toxic property assets from
the country's financial sector, two sources said on Monday.
Denmark aims to find consensus among countries about new
capital rules and strike an accord with the European Parliament
by the end of June.
Their aim is to have a deal, translating higher capital
standards set by the Basel Committee of regulators into EU law,
and turn it into reality for banks by the start of next year.
"We believe that the matter is ready - that the issues have
been clarified to a sufficient extent," said a Danish diplomat
who is preparing the talks.
Higher capital buffers strengthen banks to withstand shocks,
such as the slump in property prices or recession now hitting
Spain. Banks with higher-than-average capital, such as
Switzerland's UBS, attract deposits.
If financial markets shunned Italy and it needed emergency
funding, for example, more capital would help banks resist
But the issue of bank capital has been divisive in Europe
and many diplomats do not expect a deal on Wednesday.
British officials see the meeting as the first of several to
discuss the issue. London is cautious about the new EU capital
regime and does not want to sign away too much national control
over its banks.
"The simple fact is that ministers haven't discussed this
legislation in detail yet and we're likely to need more
discussion before an agreement can be finalised," said one
"You can't ignore the reality that the costs of getting this
wrong are profound."
The next meeting of finance ministers is set for May 15.
Europe's capital regime, when decided, will be closely
studied in Washington and may influence how policy makers there
interpret the Basel standards on Wall Street.
EU countries have yet to signal whether they will back a
push by the European Parliament to use the new capital law to
curb pay, so that a bankers' bonus could not exceed his salary.
MORE POWER TO BRUSSELS?
At the heart of the dispute is the freedom EU countries have
to enforce capital rules.
Britain and Sweden, which have two of the largest banking
sectors in Europe relative to the size of their economies, want
the freedom to take extra steps to make banks safer.
London and Stockholm argue they need to protect the
interests of taxpayers who could be called on to bail banks out
if they face collapse.
France wants capital standards to be more uniform across the
EU and is concerned that international banks based in London
could cut lending elsewhere in Europe if Britain forces them to
beef up capital.
Some diplomats suspect the dispute is fuelled by concern
that deposits and other business might flow to British banks
were they to be better capitalised than French and German rivals
and thus safer in the eyes of investors.
One compromise is to allow a margin of flexibility so that
countries that want to can require banks to increase their
capital buffers up to a certain limit, perhaps up to as much as
10 or 12 percent of risky assets for up to two years.
This compares with Basel's minimum of 7 percent.
There is a split over whether the green light is needed from
the European Commission, the EU's executive arm, before a
country can require capital levels above the Basel minimum.
Handing more power to Brussels is an anathema to Britain,
which is fighting to maintain its autonomy in policing the City
of London, Europe's financial capital.
Sweden and some Eastern European countries including Poland
are also wary over who should have the final say over the extent
to which a country may demand banks hoard higher capital.