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EU warns against overloading pandemic relief package for banks

2 Mins read
imageStock Markets9 hours ago (May 27, 2020 09:50AM ET)

(C) Reuters. FILE PHOTO: A European flag is seen outside the EU Commission headquarters in Brussels

By Huw Jones

LONDON (Reuters) – Expanding a “quick fix” package of measures for helping European Union banks keep credit flowing to pandemic-hit companies would defeat its objective, a top EU official said on Wednesday.

The European Commission has proposed temporary relief from some bank capital rules to avoid lending being crimped as the economy heads for a deep recession.

The package is being scrutinised by the European Parliament and EU states, who have the final say.

Sean Berrigan, head of the commission’s financial services unit, said the EU executive had sought to propose a package that had broad support from the outset to avoid it being slowed down by any controversial element.

“Based on our first negotiations with the member states and the parliament, we kind of got it right,” Berrigan told a webinar held by the IIF, a financial industry lobby.

But lawmakers want additions to avoid euro-denominated government debt issued by non-euro zone states in the bloc being subject to punitive capital treatment at banks.

France has suggested that a bank’s leverage ratio, a broad measure of capital, could exclude government-backed loans held on a banks’ books as they pose no risk to the lender.

More controversially, the Green Party has proposed that banks should only get relief on capital if they agree to binding measures to curb bonuses and dividends.

Berrigan said it was unclear if there is enough consensus in EU states and parliament for such additional elements.

“We would argue that anything that is going to be slow or controversial, probably however good it might be, defeats the purpose of the whole package, which is to get there quickly,” Berrigan said.

Brussels wants the package approved next month to apply in banks’ second-quarter results to mitigate some of the loan loss provisioning that saw a sharp rises in the first quarter.

EU warns against overloading pandemic relief package for banks

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