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The EU has drawn up draft legislation that will force banks to hold more capital and face tighter governance, with stricter penalties for those who flout the laws, reports the FT.Michel Barnier, the EU’s financial-services chief, has drew up the proposals. They will be voted on later today.
The proposals will implement Basel III guidelines across Europe, making Europe the first place in the world the plan has been implemented.
Some key points:
- EU banks would have to hold higher quantities of top-quality assets – around 7 per cent including a 2.5 per cent “buffer zone”.
- A liquidity coverage ratio will be implemented, thought the exact ratio will not be announced until 2015.
- A second counter cyclical capital buffer can be applied at the national level.
- Banks would be forced to reduce their dependence on external credit rating providers and develop their own internal ratings.
- There would be non-compliance fines of up to 10% of an institution’s annual turnover and temporary suspensions for bank managers.
The proposals are facing opposition from banking groups that claim that it goes beyond those outlined in the Basel III guidelines and is overly harsh. A report from Bloomberg found that need to raise about 423 billion euros ($595.5 billion) by 2019 to comply.
The guidelines also face opposition from countries such as the UK, that would like to implement their own versions of the law that would likely be harsher. Many countries would also like more flexibility to the laws.
The vote on the legislation will take place later today.
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