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EU lawmakers seek tougher curbs on foreign banks - draft compromises

Reuters · 01/06/2023 11:12
EU lawmakers seek tougher curbs on foreign banks - draft compromises

By Huw Jones


- European Union lawmakers are poised to toughen up controls over foreign bank branches, which could be forced to become subsidiaries that tie up more capital, lawmaker compromises seen by Reuters showed.

The bloc is updating its rules for banks, partly to implement the final leg of post-financial crisis bank capital rules known as Basel III. The move is being closely watched by banks based outside the EU that operate branches in the bloc.

Branches are largely regulated by a bank's home watchdog in London, Washington or wherever the parent is located, while a subsidiary in the EU would be directly supervised by local watchdogs, or the European Central Bank if they are large.

EU states have already agreed on their position, taking an accommodative approach to so-called third country bank branches.

In a series of draft compromises thrashed out between members of parliament's economic affairs committee, a foreign bank branch should hold capital equal to at least 3% of a branch's average liabilities averaged out over three years.

EU states agreed on a 2% minimum.

In addition, when a foreign bank has a branch in two or more EU states with assets totalling 40 billion euros ($42.4 billion) or more, regulators in those states must assess if the branches should be converted into subsidiaries or face other, stricter requirements.

Member states make mention of a monetary threshold.

"The assessment shall be performed every two years thereafter," parliament's draft compromise says. They could result in "targeted requirements", such as a restructuring of assets or extra capital holdings.

If regulators cannot agree on a course of action in their assessment, the EU's European Banking Authority could mediate.

The economic affairs committee is due to vote on the compromises in the coming weeks, after which lawmakers will sit down with EU states to thrash out a final version, with further tweaks likely.

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(Reporting by Huw Jones; Editing by Jan Harvey)

((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters Messaging: huw.jones.thomsonreuters.com@reuters.))