EU faces opposition to draft bank debt reform
By Huw Jones
LONDON (Reuters) - European Union plans to align global and European rules on writing down debt at collapsing banks will be rethought following concerns raised by lenders and member states, people familiar with the situation said on Monday.
The concerns involve a reform that seeks to end the idea of a bank being "too big to fail". It requires banks to issue debt that can be "bailed in", when it is in trouble, so it can operate long enough to be restructured and to avoid bailouts.
In a document seen by Reuters, the European Commission suggested last week an "integrated" approach to combining EU rules on "bailing in" debt, known as MREL, with those agreed at the international level last November, referred to as TLAC.
An integrated approach was preferable to doing nothing, or having complicated, parallel rules, the document said.
"The commission services intend to tentatively further explore ... the integrated approach," the document said.
But at a meeting with the European Union's executive last week member states signalled unease over how the MREL and TLAC rules would be integrated.
"The document is a starting point for a debate and all options remain open," a commission official said on Monday.
Some banks are unhappy because regulators are already in the midst of deciding how much debt that can be written down must be held by all lenders across the EU under the MREL rules.
The world's biggest banks, such as Deutsche Bank , HSBC and BNP Paribas in the EU, must also comply with TLAC rules, and bankers say the commission paper has raised uncertainties just as existing rules are bedding down.
While the basic idea of the rules is the same, under TLAC banks must have a fixed amount of debt that can be bailed in, while in Europe the bank's supervisor will determine the amount. There are also some difference about which debt is eligible.
"People were blindsided by the Commission paper as it could be read in a number of ways. The Commission is going to take the work forward on quite a different basis," a banking official said on condition of anonymity as the plans are not public.
Aligning global and EU definitions of capital and eligible debt is "fairly radical", the official said.
Regulators in Britain and at the global level are also keen for banks to have certainty by now on capital requirements so they can take decisions on future business models and funding.
(Additional reporting by Francesco Guarascio in Brussels; editing by David Clarke)
