EU misses Basel bank rules deal, will revive talks next week

The European Union failed to seal a deal on Basel bank rules after disagreeing on bonuses, capital requirements for big lenders and powers available to the European Banking Authority at talks in Brussels on Tuesday.

Lawmakers from the European Parliament and diplomats agreed to reconvene on Feb. 27 after their negotiations ended without a deal on how to implement components of Basel bank regulations in the bloc.

“We are not ready now,” Othmar Karas, the legislator in charge of the EU parliament’s work on the rules, told reporters. “I think the council had no mandate to finalize” the discussions, he said, referring to the grouping of EU governments currently chaired by Ireland. Still, Karas said that the talks did find consensus on the need to phase in a liquidity ratio by 2018, one year ahead of the schedule agreed on last month by global regulators.

The EU has struggled to agree on legislation to apply the international standards on capital, known as Basel III, which were published in 2010 as part of efforts to prevent any repeat of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc.

EU lawmakers have insisted that the EU legislation to implement Basel III include curbs on variable pay as part of a quest to reshape lenders as utilities rather than money-making machines.

Members of the assembly’s economic and monetary affairs committee called last year for an outright ban on bonuses that exceed fixed pay.

“Imposing a cap on the ratio of variable to fixed pay runs a high risk of increasing fixed salaries,” Isabel Pooley, a lawyer at CMS Cameron McKenna, said in an e-mailed statement.

Governments sought to reopen a draft deal reached in December by the assembly and Cyprus, which then held the EU presidency, to cap banker bonuses at twice fixed pay. Under that proposal, bonuses exceeding fixed salary would be allowed only if the majority of a bank’s shareholders voted in favor.

Several nations, including the U.K., opposed that plan at a meeting last week. The British proposal included retaining existing EU rules that require some portion of bonus awards to be deferred and ensuring that payouts can be clawed back, according to officials.

The Basel Committee on Banking Supervision brings together banking regulators from 27 nations including to the U.S., U.K., and China to coordinate their prudential rule-making.

In anticipation of tighter capital rules, lenders are selling shares, eliminating jobs and trimming costs. BNP Paribas SA, France’s largest bank, announced plans to reduce expenses and boost its dividend last week. Deutsche Bank AG, Germany’s biggest lender, said Jan. 31 it exceeded a goal for raising capital levels and eliminated more than 1,400 staff.