Bulgaria Wins Concession as EU Agrees on Bank Capital Rules

Bulgaria operates in a currency board regime, in which the lev is pegged to the euro and all Bulgarian currency in circulation is backed by foreign exchange reserves. Photo by Sofia Photo Agency

European Union finance ministers have addressed Bulgarian concerns as they agreed on a plan to force banks to hold more capital to counter their risk-taking.

After Bulgaria voiced concerns that banks may be forced to hold more capital against the country's sovereign debt, the EU ministers decided that banks in the country will not be obliged to report as risky the assets they hold in euros and will not be required to have more capital in relation to them.

The government in Sofia has pressed for the concession as the country operates in a currency board regime, in which the lev is pegged to the euro and all Bulgarian currency in circulation is backed by foreign exchange reserves.

European Union finance ministers broke an impasse Tuesday and agreed on a plan to force banks to hold more capital as a buffer against the unexpected, but bowed to pressure to give national regulators some leeway to impose higher standards on their banks.

The agreement was required for Europe to implement new global rules on banking standards known as Basel III, which were endorsed by the Group of 20 largest economies in 2010 and are meant to force banks to sock away more cash for bad times.

The so-called Basel III deal would force lenders to increase their highest-quality capital gradually from 2 percent of the risky assets they hold to 7 percent by 2019. An additional 2.5 percent would have to be built up during good times.

Under the accord agreed on by the finance ministers, member states can independently require their banks to set aside another buffer equal to 3 percent of risk weighted assets, provided the increase is applied across the entire region.

The draft approved by ministers means negotiations can begin on a final text with the European Parliament, where a committee passed its own version late Monday.

The EU hopes that the new international agreement on capital defenses for banks will prevent a repeat of the 2008 financial crisis.

We need your support so Novinite.com can keep delivering news and information about Bulgaria! Thank you!