Banks in the European Union won a battle to soften new rules on how failing firms are restructured, as the bloc’s parliament staked out its position on a sweeping overhaul of rules for the financial industry.
Lawmakers backed a cap on the loss-absorbing liabilities that regulator can force troubled banks to hold. The ceiling could help to hold down lenders’ funding costs by limiting the amount of subordinated bonds they need to issue.
Setting a limit was a priority for the banks, as countries led by Germany pushed for supervisors to have the power to set higher requirements. “Lax requirements for the subordination of liabilities are a lobbying gift to the major European banks,” Sven Giegold, a committee member who represents Germany’s Green party, said following the vote to update the law known as the Bank Recovery and Resolution Directive.
The issue proved divisive among EU member states, pitting Germany against France in a debate over whether the EU should go beyond the global standard known as total loss-absorbing capacity, or TLAC. After clashing for months, the two countries found a compromise that paved the way for a deal among EU finance ministers last month.
The committee also passed a series of changes to the bloc’s capital and liquidity requirements that handed banks further long-sought victories. The lawmakers approved revisions that could allow Bank of America Corp and Citigroup Inc and other US firms to keep their retail and wholesale operations in separate entities in the bloc.
US banks lobbied hard for that change because a previous version of the EU legislation would have forced the banks to set up a single EU-based “intermediate parent undertaking” as an umbrella company for all units in the bloc. That would have conflicted with US laws and presented a challenge to the corporate structure of some of America’s biggest banks.
Having settled on its negotiating stance on the bills, the parliament can now begin talks with EU member states on final versions of the legislation.