EU executive studies tweaks to bank capital rules
BRUSSELS (Reuters) - Banking regulators in the European Union may need more detailed guidance on determining how much extra capital banks must hold to cover risks, the bloc's executive body said on Tuesday. The European Commission said there were concerns over differences in the way supervisors in different countries ask banks to top up their mandatory core capital buffers. "This is why we have now started the process of reflecting on this with member states and others, to ensure that the legislation works as intended," said Vanessa Mock, spokeswoman for the EU's financial services chief Jonathan Hill. The EU executive is looking at how regulators determine the level of so-called Pillar 2 top-up capital banks should hold above their Pillar 1 mandatory minimum. "In essence, we believe that there might be a need to make a clearer distinction between the use of so-called Pillar 1 requirements, which are laid down in law and apply to all banks, and so-called Pillar 2 requirements," Mock said. A Commission document to member states seen by Reuters sought to clarify how Pillar 2 is calculated by regulators and whether changes are needed on when restrictions on payouts such as bonuses and bond interest are dealt with. The add-on capital should only cover risks that are not covered or fully covered by core buffers, the paper said. When capital at a bank falls below a certain level it can trigger an automatic stop on payments such as bonuses, dividends and interest on risky debt known as contingent capital, or CoCos. However, the Commission paper said that holders of the risky bonds cannot be compensated for missed payments through higher distributions in subsequent more profitable years, unlike shareholders or receivers of variable remuneration or discretionary pension benefits. Investors in these bonds "may deserve particular protection relative to the other stakeholders concerned", it added. (Reporting by Huw Jones in London and Tom Koerkemeier in Brussels; Editing by David Goodman)
