June 15, 2015 / 4:50 PM / 4 years ago

Britain set to win exemption from EU "too big to fail" banks reform -sources

LONDON, June 15 (Reuters) - Britain looks set to be exempt from a European Union law that aims to end “too big to fail” banks by reining in trading risks, diplomatic sources said on Monday.

Latvia, which currently holds the EU presidency, is due to present a revised draft law to EU states’ ambassadors on Wednesday. If it wins their support it would then be submitted to finance ministers on Friday for endorsement, three sources familiar with the talks said.

Britain is on course to get an exemption from the EU bank structural reform, according to documents seen by Reuters, because it is already requiring the retail arms of its lenders to hold extra capital under its own bank reform, known as Vickers, from 2019.

That would be a victory for the British government, which is trying to limit the reach of EU rules on one of its most important economic sectors and which is due to hold a referendum on Britain’s membership of the EU.

Under the proposed revision, a bank with retail deposits of less than 35 billion euros will not be subject to the EU law. That is a similar threshold to Britain’s Vickers’ rule and is down from 50 billion euros under previous EU proposals.

“It shows the UK getting traction with aligning the minimum limit with Vickers,” a banking industry source said.

EU states like Britain could then choose a mandatory system or use discretion in deciding if there should be separation, the latter option preferred by Germany and France.

This would allow Britain to continue with Vickers without the EU law mentioning it by name, which would have been legally difficult, sources said.

With Britain due to hold an EU referendum by end of 2017, diplomats wanted to avoid a clash over financial regulation, the sources added.

For banks that come under the new EU law, those with trading activities of less than 100 billion euros would be in the first of two “tiers”, meaning they face relatively light requirements, the sources said.

But a bank “whose trading activities ... over the period of the last three years exceed 100 billion euros” would fall into the second tier and come under the full scope of the new law.

This would include all banks that have been deemed by global regulators to be systemically important, such as Deutsche Bank , SocGen and BNP Paribas, the documents showed.

They may have to hold extra capital but there would be no automatic mandatory separation of trading activities.

Latvia has also proposed scrapping a ban on proprietary trading that was in the original draft law written by the European Commission. Instead, banks would have to place prop trading in a legally separate entity.

The draft law has been the subject of much debate as Britain, Germany and France already have rules to mitigate bank trading risks and want to avoid costly overlaps.

The European Parliament’s economic affairs committee, which has joint say on the draft law, failed last month to agree a stance ahead of negotiations with EU states on a final law. (Editing by Susan Fenton)

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