SYSTEM SAFEGUARDS:EUROPEAN UNION rules designed to make the financial system safer would require banks operating in Europe to raise an estimated €460 billion in capital by 2019 or reduce their risk and balance sheets substantially.

Draft proposals unveiled yesterday, which still need approval from the 27 member states and the European Parliament, make the EU the first jurisdiction to start implementing the global Basel III capital and liquidity guidelines that were adopted last year.

That accord forces banks to hold more top-quality capital against potential losses and keep enough easy-to-sell assets to withstand a market crisis. The Brussels version, which applies to over 8,200 banks and investment firms, would fine banks that fall short.

Industry groups in the UK and Germany warned that if the EU moved too far ahead of the rest of the world, its banks could lose out to international competitors and cut lending to the real economy.

Irish banks already hold the capital levels specified under the proposals. The projected capital shortfall, equivalent to 2.9 per cent of all the EU banks’ risk-weighted assets, goes a long way towards explaining why EU banks are among the fiercest critics of the Basel III proposals. – (Copyright The Financial Times Limited 2011)