Europe News

Paris, Berlin Seek to Dilute Bank Rules

Alex Barker and Brooke Masters, Financial Times

France and Germany are to call for a relaxation of global bank capital rules to prevent lending to the real economy being choked off, setting them at odds with the UK’s stricter approach to banks.

German Finance Minister Wolfgang Schaeuble
Axel Schmidt | AFP | Getty Images

A joint paper by Wolfgang Schäuble, German finance minister, and his French counterpart, François Baroin, will on Monday call for important elements of the Basel III rules to be watered down to mitigate any “negative effect” on growth.

A draft of the paper seen by the Financial Times calls for special treatment for banks that own insurance companies and for a three-year delay to the mandatory deadline to disclose leverage ratios, a measure of bank borrowing and risk.

The demands will delight some bankers but are likely to infuriate policymakers in London, who have been fighting hard to stop French-led attempts to dilute the Basel III accord.

While the debate revolves around relatively technical regulatory issues, it is politically highly charged. British ministers complain that Paris and Berlin are going soft on their banks and attempting to cover up their more relaxed approach by stopping London from taking a tougher line.

The power to go beyond European Union bank capital rules was one of the demands made by David Cameron, UK prime minister, at a summit in December that resulted in Britain vetoing a new treaty.

Implementation of the Basel III capital rules with regard to banks with insurance companies is a particular point of friction, as tweaks backed by France and Brussels will boost the capital of Société Générale and Crédit Agricole by billions of euros – both owners of insurance companies.

In December global regulators rebuffed France and overwhelmingly sided with the UK’s stricter interpretation. Yet the Franco-German statement will restate support to amend the rule, which prevents capital being double-counted towards the requirements of both the insurer and parent bank.

Monday’s proposals will also open a new faultline by suggesting the deadline to publish leverage ratios – the ratio of top-quality capital to total assets – should be pushed back from 2015 to 2018.

That contrasts with UK regulators who have proposed that banks disclose