Commissioner Barnier arrives in London as the eurozone crisis and banking regulation top the agenda

written by Anne Fairweather on 21/07/2011

Michel Barnier, the European Commissioner for internal market and services, arrived in London just as the heads of state and government of the eurozone were about to descend on Brussels to seek a solution to the Greek sovereign debt crisis. The need for a co-ordinated and united response to Europe's economic woes could not have been clearer.

Top of the Commissioner's agenda was his new proposal on bank capital - the so-called Capital Requirements Directive IV (CRD IV). CRD IV has been a long time in the pipeline and is the vehicle through which the EU will implement the commitments on bank capital and liquidity made in Basel III. Unlike the US the European will apply the saem approach to all 8,000 of the EU's banks, no matter how small. As a result the Commission has argued that certain European 'specificities' should be taken into account.

The most dramatic change in approach in CRD IV, compared to previous directives, is that part of the rules will be implemented as a regulation. This will require a uniform law across all EU member states of the EU. The Commission argues that this is necessary if the new European Banking Authority is to be able to play its part in supervising cross-border credit institutions. The Commission has said that the level of capital which is set in what is known as "pillar one" (of three) should be absolute, without the opportunity for member states to go higher or lower in their legislation. It sees this as essential to ensure that there is no regulatory competition within the EU.

However the UK has openly criticised this approach, as the Bank of England (and potentially the Treasury in response to the Independent Commission on Banking) may want to mandate higher capital requirements.

We believe the proposed rules do allow for enough flexibility. CRD IV allows for supervisors to add on capital on specific institutions if it sees risks, or across the piece if there is concern about macro-prudential risks in the economy, for example credit bubbles.

The Commissioner will also have on his agenda his planned proposal on crisis management and resolution of banks, along with a review of the Markets in Financial Instruments Directive (MiFID), which regulates market infrastructure. As London remains Europe's centre for banking and trading, these proposals will have a significant impact in the UK. We are therefore very pleased to be welcoming back the Commissioner to the BBA today to discuss his plans further.