BRUSSELS, Nov 23 (Reuters) - The European Commission proposed new rules for banks on Wednesday in line with capital requirements agreed by global regulators - but with some tweaks, in a sign of a growing fragmentation of international financial controls.
Unveiling a large legislative package, the EU executive arm proposed adapting EU rules on capital requirements and loss-absorbing buffers to agreements reached earlier in the Basel Committee of global financial regulators, which oversees U.S., European and Japanese lenders.
But instead of simply replicating the rules agreed with international partners, the Commission proposed several changes and some new provisions that may upset non-EU banks and regulators.
"We have put forward new risk reduction proposals that build on the agreed global standards while taking into account the specificities of the European banking sector," said Valdis Dombrovskis, the EU commissioner on financial services.
The move comes as the European Union is battling a new set of reforms expected to be adopted by the Basel Committee in the coming weeks on banks' models to calculate risks, which the EU thinks may favour U.S. banks.
The trend towards an increasing fragmentation of global financial rules was underlined by U.S. president-elect Donald Trump's statements during his election campaign about the possibility of reviewing the rules introduced to reduce bank risks after the 2007-08 financial crisis.
In a further sign of diverging agendas and conflicting interests between the EU and the U.S., Brussels has also decided to propose higher capital requirements for U.S. and other top foreign banks operating in the EU, saying that this measure would increase financial stability PROPOSED
The Commission has also proposed a new set of requirements for European banks aimed at making them safer.
Under the proposals, EU lenders would be required to hold a binding 3 percent leverage ratio meant to reduce excessive lending. The measure will be integrated at a later stage with higher requirements for systemic banks, the Commission said in a note.
Banks would also have to meet a so-called Net Stable Funding Ratio (NSFR) aimed at limiting excessive reliance on short-term funding that was among the causes of the global financial crisis.
The ratio is set at a minimum level of 100 percent, which means that a bank needs to hold "sufficient stable funding to meet its funding needs during a one-year period under both normal and stressed conditions," the Commission said in a note.
Brussels is also proposing tighter capital requirements on bank trading books of shares, bonds or derivatives, because of their higher volatility.
In a deviation from global rules, the Commission said the new rules will be phased in beyond the globally-agreed 2019 starting date. Brussels is also proposing several exceptions for the NSFR widely anticipated, new global rules to force systemic banks to hold sufficient capital buffers to absorb losses, the so-called Total loss absorbing capacity (TLAC), will be introduced in the EU legislation with tweaks to the EU's standard called Minimum Requirement for own funds and Eligible Liabilities (MREL).
In changing the rules governing MREL, the Commission proposed also tweaks to bail-in regulations which are aimed at reducing losses for taxpayers in case of a bank crisis, while hitting the lenders' creditors.
It proposed to increase watchdogs' powers and launched a new category of debt that could be wiped out in a crisis only after shares and bonds but before more secured instruments, in a bid to harmonise rules in EU countries and facilitate the banks in their task to meet the targets the aim of increasing the funding of the real economy, which is still struggling in some euro zone countries, the Commission proposed lower requirements for bank lending to small companies and for infrastructure projects.
It also reduced some constraints on banker pay at small lenders proposals made by the Commission need the approval of EU states and European lawmakers to become law.