BRUSSELS (Reuters) - European Union finance ministers reached an agreement on Friday on reforming bank capital rules, a major step towards boosting the bloc’s financial stability and a stepping stone towards a deal on a backstop for its bank-rescue fund in June.

The accord came after 18 months of heated debate among the 28 EU governments on how to apply new global bank capital rules that overhauled financial regulations after the 2007-2009 global crisis.

It paves the way for another breakthrough on the bloc’s bank rescue fund, which ministers committed on Friday to equip with a backstop, although the final decision will be made only in June.

The two measures are seen as interlinked because the banking capital rules are expected to reduce bank risk, which would allow more sharing of risk among euro zone countries in the form of a common backstop to prop up the sector’s rescue facility, known as Single Resolution Fund.

Germany’s Finance Minister Olaf Scholz said after the meeting that the deal was a good start that would provide momentum towards further progress in the area.

Under the accord, which must be approved by EU lawmakers, European banks will have to abide by a new set of requirements aimed at keeping their lending in check and ensuring they have stable funding sources.

Germany and France fully backed the deal, others accepted it with some reservations. Italy and Greece, which abstained, said the deal on capital rules should be matched by an agreement on sharing banking risk by June.

Italy’s position, although in line with past statements, was partly dictated by the fact that it has yet to form a government after inconclusive elections in March.

FILE PHOTO: European Union flags flutter outside the European Central Bank (ECB) headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo

FAVOURABLE TREATMENT

Under the deal, the euro zone’s agency for troubled banks, the Single Resolution Board, will be given a clearer mandate to set the level of capital buffers that banks should hold against the risk of failure.

The so-called Minimum Requirement for own funds and Eligible Liabilities (MREL), which introduces into EU legislation the global standard known as Total Loss Absorbing Capacity (TLAC), will be set at 8 percent of large banks’ total liabilities and own funds.

The SRB will, however, be able to require higher buffers for banks it deems insufficiently safe, or a lower buffer for better capitalised institutions.

Ministers agreed on a more favourable capital treatment for large banks in countries that belong to the bloc’s banking union, such as France’s BNP Paribas (BNPP.PA), Netherlands’ ING (INGA.AS) and Italy’s Unicredit (CRDI.MI), as their exposure to other countries in the bloc will be treated as a safer domestic exposure.

The agreement “will allow our banks to better finance households and firms in France and in Europe,” the French Finance Minister Bruno Le Maire said.

However, Britain’s finance minister Philip Hammond and ministers from smaller EU states said that departure from global standards could heighten risk.

The new rules would also require large foreign banks to set up intermediate parent undertakings (IPUs) that would bring their EU operations under a single holding company. The move effectively mirrors U.S. rules and is seen as crucial to protecting the bloc’s financial stability against risks posed by major banks.

SHARING RISKS

In a minor concession to reluctant states, ministers reiterated their intent to reach an agreement on a state-funded backstop for the euro zone’s bank-funded Single Resolution Fund.

FILE PHOTO: Bulgaria's Finance Minister Vladislav Goranov attends an EU finance ministers meeting in Brussels, Belgium, May 25, 2018. REUTERS/Yves Herman

The fund is currently equipped with 17 billion euros ($19.9 billion), but that is not considered enough to cope with a larger banking crisis.

The backstop is expected to be provided by the euro zone’s state-backed bailout fund, the European Stability Mechanism.

Another measure of risk sharing, a common insurance of covered bank deposits, is still far from being agreed, despite being a pillar of the banking union, the EU’s flagship project to strengthen its banking sector after years of crisis.</s>Brussels: European Union (EU) finance ministers reached on Friday an agreement on reforming bank capital rules, a major step to boost the bloc’s financial stability and to agree on a backstop for its bank-rescue fund in June, officials said.

The deal came after 18 months of heated debates among the 28 EU governments on how to apply new global bank capital rules that overhauled financial regulations after the 2007-2009 global crisis.

“The Council (of EU finance ministers) has agreed a general approach on the banking package,” said Vladislav Goranov, the Finance Minister of Bulgaria, the country that holds the EU presidency, at a public session of a meeting of EU finance ministers in Brussels.</s>BRUSSELS (Reuters) - European Union finance ministers reached an agreement on Friday on reforming bank capital rules, a major step towards boosting the bloc’s financial stability and a stepping stone towards a deal on a backstop for its bank-rescue fund in June.

The accord came after 18 months of heated debate among the 28 EU governments on how to apply new global bank capital rules that overhauled financial regulations after the 2007-2009 global crisis.

“The Council (of EU finance ministers) has agreed a general approach on the banking package,” said Vladislav Goranov, the Finance Minister of Bulgaria, the country that holds the EU presidency, at a public session of a meeting of EU finance ministers in Brussels.

The agreement paves the way for another breakthrough on the bloc’s bank-rescue fund, which ministers committed on Friday to equip with a backstop, although the final decision will be made only in June.

The two measures are seen as interlinked because the banking capital rules are expected to reduce bank risk, a move that would in turn allow more sharing of risk among euro zone countries in the form of a common backstop to prop up the sector’s rescue facility, known as Single Resolution Fund.

Under the accord, which still needs approval by EU lawmakers, European banks will have to abide by a new set of requirements aimed at keeping their lending in check and ensuring they have stable funding sources.</s>BRUSSELS (Reuters) - European Union finance ministers are likely to agree on Friday to new banking capital rules in a major step toward enhancing EU financial stability, but the deal could be delayed because Italy’s political crisis, EU officials said.

The potential delay could be seen as a first sign of how Italy’s prolonged crisis and its emerging eurosceptic government could further slow the bloc’s already sluggish reform process.

An agreement on the banking reform would come after 18 months of heated debates among the 28 EU governments on how to apply new global bank capital rules that overhauled financial regulations after the 2007-2009 global crisis.

Countries have battled for months over the level of capital buffers that banks should hold against risk of failure and the powers of the EU agency for troubled banks, the Single Resolution Board, to enforce these capital requirements.

But the major hurdles have now been cleared and a deal could be finalised on Friday when EU finance ministers gather in Brussels for a regular meeting, three European officials said.

Germany and France, the two main economies of the euro zone, are ready to back the main elements of a compromise put forward by the Bulgarian presidency of the EU, officials said.

The deal would give the SRB a clearer mandate in setting banks’ capital buffers, known as Minimum Requirement for own funds and Eligible Liabilities (MREL).

But the finalization of the agreement could be postponed because Italy, the euro zone’s third largest economy, might not be able to endorse the deal, as the country is in the process of forming a government, one EU official said.

An agreement on the banking package requires a qualified majority of EU member states and could be sealed even if Italy opposed it. But, given the importance of the proposals, the Bulgarian presidency could opt for a postponement of the vote, as it did at a meeting in March to wait for the swearing-in of the new German government.

The possible delay would however highlight EU discomfort at dealing with a new Italian government of the anti-establishment 5-Star and the far-right League dedicated to a high-spending program that calls into question crucial fiscal and banking rules of the European Union.

The decision on whether sealing or delaying the deal will be made on Friday after a public debate among EU finance ministers, a spokeswoman for the EU’s current Bulgarian presidency said.</s>BRUSSELS, May 24 (Reuters) - European Union governments are considering new rules to counter money laundering after alleged wrongdoing at two banks in smaller states of the bloc flagged risks to financial stability, according to officials and an EU document.

The possible move follows the collapse of Latvian bank ABLV in February and the freezing of operations at Malta's Pilatus Bank in March after allegations of money laundering.

In both cases, the alleged wrongdoing was exposed by U.S. authorities and not by EU watchdogs -- a situation that the head of euro zone banking supervision, Daniele Nouy, said was "very embarrassing" as it showed weaknesses in European oversight.

European finance ministers discussed how to strengthen the EU oversight at an informal meeting in April and are likely to address the topic again in regular monthly meetings later on Thursday and on Friday, as part of discussions on banking rules reform, three EU officials told Reuters. "EU states agree that the existing anti-money laundering provisions are not sufficient," one of the officials said, reporting discussions held by EU states' envoys last week to prepare this week's meeting of finance ministers.

Banks are free to move capital across EU states and beyond, but checks on money laundering and other financial crimes remain largely a national competence -- a mismatch that EU authorities say could hamper controls and create financial stability risks.

The recent banking troubles in smaller member states have strengthened the arm of those who want to enhance EU oversight powers, overcoming long-standing resistance in some capitals to relinquish national competence on this.

Some states are calling for a new body to be set up to counter money laundering at EU level, while others favour the idea of giving more power to one of the existing EU financial regulators, like the European Banking Authority.

A less bold option would entail a tighter application of existing anti-money laundering rules, which have been overhauled several times in past years, with the latest reform due to be applied by 2020, officials said.

One of the options on the table could be agreed upon before an EU leaders' summit in December, officials said.

The talks follow a letter sent by the EU Commission to the bloc's financial regulators in which the EU executive urged better cooperation against money laundering to avoid "serious detrimental effects on the financial soundness of individual institutions," the document seen by Reuters said.

EBA and the European Central Bank declined to comment on the letter.

The Commission urged that EU powers to revoke banking licences in case of money laundering concerns be clarified.

EU rules give the ECB the role of granting and withdrawing banking licences in the euro zone, but do not give Frankfurt a clear mandate to prevent money laundering, which remains the job of domestic supervisors.

These limits were evident in the Pilatus case. The Maltese bank had for long been a concern for euro zone supervisors, an ECB official told Reuters. But it maintained its licence.

Maltese authorities froze the bank's accounts and assets only after Pilatus' Iranian chairman was arrested in the United States under charges of money laundering and bank fraud.</s>The Foreign Affairs Council (28/05/2018) will start with a discussion on current affairs, allowing ministers to review pressing issues on the international agenda.

The High Representative Federica Mogherini and ministers may refer to the Sofia Summit (17 May), recent developments related to North Korea and the situation in Yemen.

Foreign ministers will continue to discuss Iran and the nuclear deal (#JCPOA) in light of the latest developments, in particular after the US decision to withdraw from the agreement.

This follows the discussion by EU leaders at their meeting in Sofia on 16 May. At this meeting, they agreed unanimously that the EU will stay in the agreement as long as Iran remains fully committed to it.
• Declaration by the High Representative on behalf of the EU following US President Trump’s announcement on the Iran nuclear deal (JCPOA) (press release, 09/05/2018)
• European Commission acts to protect the interests of EU companies investing in Iran as part of the EU’s continued commitment to the JCPOA (Commission press release, 18/05/2018)

Foreign ministers will exchange views on the political situation in Venezuela, after the presidential election of 20 May. The Council is expected to adopt conclusions on Venezuela.
• Declaration by the High Representative on behalf of the EU on the presidential and regional elections in Venezuela (press release, 22/05/2018)

The Council will discuss the situation in the Democratic Republic of Congo, following up on the Council conclusions of 11 December 2017 and in view of the foreseen elections at the end of the year.
• The Democratic Republic of Congo and the EU (EEAS website)

Over lunch, foreign ministers will discuss the situation in Gaza following recent developments, including in relation to the move of the US Embassy in Israel to Jerusalem.
• Statement by the High Representative Federica Mogherini on violence in Gaza and latest developments, 14 May 2018 (EEAS)

The Council is expected to discuss the negotiating mandate for the future agreement between the EU and the African, Caribbean and Pacific (ACP) countries. The current ACP-EU Partnership Agreement, also known as the Cotonou Agreement, will expire in February 2020.

Foreign ministers had an initial discussion during January’s Foreign Affairs Council. Development ministers had a discussion on 22 May 2018.
EU finance ministers reach an agreement on reforming bank capital rules.