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EU takes on US in tit-for-tat bank row

EU takes on US in tit-for-tat bank row

BRUSSELS: The EU will require big foreign banks operating in Europe to set aside billions in reserve funds in a tit-for-tat move against the United States that could also affect post-Brexit Britain, a draft proposal seen by AFP said.

The European Commission, the executive body of the 28-nation European Union, on Wednesday will announce a series of new banking regulations that will include the new requirement.

“We are actually mirroring what the US has already done,” a European source said in advance of the announcement of the new capital requirements.

The US in 2014 angered Brussels when it suddenly required major European banks such as Germany’s Deutsche Bank to park billions in the United States in case problems at their subsidiaries threatened to involve the US taxpayer.

The EU warned at the time that these extra costs risked sparking a protectionist reaction in Europe.

If approved into EU law, the new measure would require major US banks such as Goldman Sachs and JP Morgan to set aside extra capital so that their operations in Europe could be wound up separately if needed.

The Financial Times, which first reported the proposal, said that the requirements would force the banks to raise billions of euros to keep operating in Europe.

The rules could also pose a threat to the City of London after the UK completes its Brexit divorce from the European Union.

The measure by the EU comes amid spats with the US over Apple and Deutsche Bank and squabbles about Airbus and Boeing and will exacerbate further the strains in US-European economic relations.

Outgoing US Treasury Secretary Jacob Lew has repeatedly accused the Europeans of disproportionately focusing on US corporations.

President-elect Donald Trump meanwhile ran his campaign on a promise to be especially sensitive to protecting US companies and jobs against foreigners.

“The European Commission took some time to respond to the US authorities,” said Nicolas Veron, an economist at the Peterson Institute for International Economics in Washington and at the Brussels-based think tank Bruegel.

“Where it gets complicated is over Brexit. The British will say this is a stab in the back even before the start of Brexit negotiations,” he added.

Veron warned that after Brexit the new measure risked forcing US banking giants, now based in London, to keep an extra headquarters in the EU at a huge cost.

The proposals will face close scrutiny “as long as Britain remains in the EU,” Veron said.

Courtesy : Dawn News

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