David Cameron's EU deal may lead to twin bank rules

An EU deal to satisfy UK Prime Minister, David Cameron’s demands for greater UK sovereignty may include two-track banking rules for eurozone countries and those outside the currency bloc.

A draft settlement states that “prudential requirements for credit institutions”, and other rules to bolster financial stability, may have to be “conceived in a more uniform manner” for application in the eurozone, with its single supervisor and resolution authority, than in the EU’s nine non-euro states, which include the UK, Sweden, and Poland.

As part of the UK’s drive to wrest changes from the EU and convince voters to support remaining in the 28-nation bloc, in a referendum as early as June, Mr Cameron has tried to win protection for the country’s financial centre, the City of London, in the face of ever-closer financial ties in the eurozone.

The proposal may give non-euro authorities more flexibility in implementing EU banking law.

The draft settlement may signify “a further waning in the post-crisis push for a single-rule book in EU capital markets,” said Richard Reid, a research fellow for finance and regulation at the University of Dundee, in Scotland.

“This could be beneficial for the UK, which is very conscious of the importance of its financial services industry and is keen to ensure that its international competitiveness is not undermined by unnecessary EU legislation.”

Since the financial crisis, the EU has been working to standardise bank rules to level the playing field between nations overseen by the London-based European Banking Authority. 

That has been complicated by the creation of a banking union in the eurozone focused on the ECB, which supervises the currency bloc’s lenders, and the Single Resolution Board, which handles failures.

Over the past few years, the UK has battled with eurozone governments over proposed financial legislation, as it has sought to protect the City as Europe’s main financial centre and keep control over its regulation. 

The UK took the ECB to court over its plan to dictate the location of the clearing of euro-dominated trades, and clashed with the EU over legislation on bonus rules for bankers and short-selling.

The draft settlement, which needs the endorsement of EU leaders, at a summit later this month, signals a formal separation between euro and non-euro countries in applying bank rules, giving Mr Cameron ammunition to claim greater control of British financial legislation. 

It would apply to secondary law — technical rules, rather than primary legislation. Given the need for “more uniform” rules for the 19-nation eurozone, “different sets of Union rules may have to be adopted in secondary law, thus contributing to financial stability,” says the draft.

— Bloomberg


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