EU extends capital grace period for banks using U.S. clearers

LONDON (Reuters) - The European Union’s executive body has postponed for the fourth time imposing tougher capital requirements on banks from the EU that pass derivatives through non-EU clearing houses.

Without a delay, EU banks using U.S. third parties to clear their trades would have to hold more costly capital as insurance against defaults, a step the industry says would be a catastrophe that fragments a global $552 trillion market.

Clearers are backed by default funds and ensure that a trade is completed, even if one side of the deal goes bust.

“The commission has today decided to extend the transitional period for capital requirements for EU banking groups’ exposures to central counterparties,” the European Commission said in a statement.

The six-month extension runs to 15 June, 2016.

It indicates the inability of the EU and the United States to reach a deal on recognising each other’s new rules making derivatives trading safer and more transparent.

Without the EU deeming U.S. rules to be “equivalent”, or as strict as its own, banks from the 28-country bloc must hold more capital if they use an American clearing house.

Transatlantic negotiations among regulators over equivalence have dragged on for more than a year.

“The work is continuing,” the Commission’s financial services chief Jonathan Hill told reporters on Thursday.

Without EU equivalence, U.S. clearing houses won’t be allowed to clear derivatives the bloc has mandated must be centrally cleared from June next year, putting them at a competitive disadvantage.

In the latest twist, EU regulators have consulted the industry on changing their own margining rules in order to make it easier to deem the U.S. system equivalent, a move opposed by some EU-based clearing houses.