–King Says Any EU Maximum Bank Capital Plan Theological, Nonsense

LONDON (MNI) – Bank of England Governor Mervyn King fiercely
defended UK regulators’ freedom to set capital requirements for banks at
whatever level they see fit, dismissing apparent opposition to the idea
from Brussels as baffling nonsense.

The European Commission is supportive of the idea of maximum, as
well as minimum, capital requirement for banks across the EU – although
the whole area is a legal minefield and just what freedom national
regulators will have is fraught with uncertainty.

King told lawmakers here that he could make no sense of the view
that domestic authorities should be subject to an upper limit on capital
requirements for banks, and his view is clearly shared by the UK
Treasury.

The reforms to the banking system advocated in a government
commissioned report by former BOE chief economist John Vickers go well
beyond any supra-national requirements.

The BOE, which is being given the powers to spearhead UK
regulation, does not want its freedom to act to enhance financial
stability curtailed.

King was asked about the EU’s Capital Requirements Directive IV,
which on one reading will make it difficult for the UK to set higher
capital requirements for banks than are present in other EU states.

“It is still a problem. The Commission’s current proposals still
want to impose maximum harmonisation,” King said.

“I am completely baffled as to why they want to do it. There is no
logical or economic reason why you would want to have maximum
harmonisation, other than a theology of convergence for the sake of it,”
King said.

The BOE Governor added that the whole spirit of the Basel
agreements “was to have a level playing field in terms of common minimum
requirements and no one could conceive of any reason to object to a
country wanting to impose higher requirements, for example, to protect
their taxpayers.”

He said he believed an increasing number of EU governments would
come to share the view it was nonsense to imposed harmonised, maximum
limits.

“The Commission takes the view that some of the things that we all
want to do through implementing the Vickers Commission report proposals,
or indeed macro-prudential regulation through the Financial Policy
Committee of the bank, could be done through what is known as Pillar 2
of the Capital Requirements (Directive),” King said.

That seems “rather bizarre” as Pillar 2 only covers individual
banks not macro-prudential issues, King said.

“I can’t see any reason why anyone should object to a country ….
to have higher capital requirements. I absolutely agree there needs to
be common minimum requirements, and it is a good thing Europe is taking
this through European parliament,” he added.

In other comments to lawmakers King said UK regulators should aim
for robust, simple rules rather than ever greater complexity and that
regulators should exercise judgement.

He also cited MF Global as a good example of an institution where
there was no public interest in saving it.

–London newsroom 0044 20 7862 7491; email:
drobinson@marketnews.com

[TOPICS: M$B$$$,M$$BE$]