EU agreement on bank-capital reform

EU FINANCE ministers reached an agreement on Friday on reforming bank-capital rules, a major step towards boosting the bloc’s financial stability and a stepping stone towards a deal on a backstop for its bank-rescue fund in June. The accord came after 18 months of heated debate among the 28 EU governments on how to apply new global bank-capital rules that overhauled financial regulations after the 2007-2009 global crisis.

It paves the way for another breakthrough on the bloc’s bank rescue fund, which ministers committed on Friday to equip with a backstop, although the final decision will be made only next month.

The two measures are seen as interlinked, because the banking-capital rules are expected to reduce bank risk, which would allow more sharing of risk among euro zone countries in the form of a common backstop to prop up the sector’s rescue facility, known as Single Resolution Fund.

Germany’s Finance Minister Olaf Scholz said after the meeting that the deal was a good start that would provide momentum towards further progress in the area.

Under the accord, which must be approved by EU lawmakers, European banks will have to abide by a new set of requirements aimed at keeping their lending in check and ensuring that they have stable funding sources.

Germany and France fully backed the deal, while others accepted it with some reservations. Italy and Greece, which abstained, said the deal on capital rules should be matched by an agreement on sharing banking risk by June. Under the deal, the euro zone’s agency for troubled banks, the Single Resolution Board, will be given a clearer mandate to set the level of capital buffers that banks should hold against the risk of failure. – Reuters