Verbatim report of proceedings

Monday, 26 September 2005 - Strasbourg

14. 1. Taking up and pursuit of the business of credit institutions, 2. Capital adequacy of investment firms and credit institutions

  President. The next item is the debate on the report (A6-0257/2005) by Mr Radwan, on behalf of the Committee on Economic and Monetary Affairs, on the proposal for a directive of the European Parliament and of the Council relating to the taking up and pursuit of the business of credit institutions (COM(2004)0486 C6-0141/2004 2004/0155(COD)), and also on the proposal for a directive of the European Parliament and of the Council relating to the capital adequacy of investment firms and credit institutions (COM(2004)0486 C6-0144/2004 2004/0159(COD)).

  Charlie McCreevy , Member of the Commission. Mr President, I would like to start by thanking Alexander Radwan and the Economic and Monetary Affairs Committee for the excellent work done on this dossier. Let me stress that the work on the Capital Requirements Directive has been a very good example of efficient cooperation between Parliament, the Council and the Commission. Considering the complexity of the issues involved, I think this has been a real achievement.

A state-of-the-art accepted supervisory framework for both credit institutions and investment firms is important for the financial stability of the European market and in creating a level playing field, not just within the European Union, but across the global financial community compared to those countries also following the Basel II process.

Our proposal has been prepared in close cooperation with Member States and the finance industry and was subject to extensive consultation. It is in line with the Basel II Accord, but takes account of European specificities where necessary. Even the latest proposals for the treatment of trading-related activities will be included.

This proposal provides a regulatory framework for financial activities in the EU. It improves the supervisory regime currently in place, which is primarily based on regulatory capital requirements. The new regime will have a solid basis of three pillars. Firstly, more risk-sensitive regulatory capital requirements, which are closer in line with banks’ own practices; secondly, an enhanced supervisory review process to ensure a closer fit of these new requirements; and, thirdly, disclosure requirements which improve transparency and market discipline. This proposal represents a move to an altogether more sophisticated and refined approach to supervision and risk management.

By adopting this proposal, the EU will be the first international organization to implement the new Basel II framework. This will be a major step towards better banking supervision and will foster greater effectiveness of the European financial markets.

Let me now turn to the comitology issue. As we all know, this debate is linked to the wider question of the powers of the Council and the European Parliament in the comitology procedures. We need to make sure that the legislative process does not come to a halt. I do not believe that our citizens and the industry would understand that important legislative proposals, such as those on the table today, are taken hostage on account of an issue such as comitology – important as it may be.

We need to find a pragmatic way to ensure a smooth legislative conclusion to the comitology provisions in the Capital Requirements Directive. I welcome the efforts made by the European Parliament and the Council to find agreement on this issue. I think we all agree that adoption in first reading of this directive is in the interest of all three institutions and it is also what the marketplace wants.

Comitology being a general issue, we must look at it in its general context. The Commission submitted a proposal for a modification of the 1999 Comitology Decision in 2002, followed by an amended proposal in 2004. This proposal already took into account important elements requested by the European Parliament, in particular that the European Parliament and the Council should be put on an equal footing as regards their powers in the comitology procedures.

It is in large part thanks to the persistence of Parliament, and of your rapporteur in particular, that the Council will now take up work on revising the Comitology Decision, using the Commission’s revised proposal as a basis.

I welcome the initiative taken by the Presidency to set up a ‘Friends of the Presidency’ group to launch the discussion on the Commission proposal in the Council. This is an important step forward. The European Parliament must confirm urgently whether its support of the Commission proposal still holds and if not, identify clearly what it wants to achieve. The Commission stands ready to cooperate both with Parliament and the Council to arrive at a satisfactory conclusion on this delicate matter as soon as possible.

Let me make only a few more specific points. I understand the European Parliament’s interest in creating a much stronger sense of urgency with regard to the question of its powers to supervise the Commission’s exercise of its implementing powers. But introducing a sunset clause, coming into force on 1 January 2007, would be too short. There is a serious danger that such a drastic reduction in the duration of the sunset clause would send a wrong and dangerous signal to the marketplace that the adoption of the necessary implementing measures could become highly uncertain.

The Council has indicated that a period of at least two years is acceptable. In the light of the discussions that have taken place, the Commission considers that this is a viable period. The introduction of such a reduced period for implementing powers – much shorter than the normal period of four years – clearly emphasizes the need urgently to find a solid, lasting and balanced solution for the supervision of the Commission’s implementing powers by both branches of the legislative authority. All institutions must work together to reach this solution as quickly as possible. In this regard, the Commission notes that in the first half of 2007, the first sunset clauses under the so-called Lamfalussy process will start suspending the Commission’s implementing powers for two directives - the Conglomerates Directive on 11 February 2007 and the Market Abuse Directive on 12 April 2007.

While the Commission lives by the commitments made by the then President, Romano Prodi, and my predecessor Frits Bolkestein, when the European Parliament approved the Lamfalussy process, the Commission understands that a renewal of its implementing powers for those directives would be problematic in the absence of an overall solution on comitology. This very fact should motivate all institutions to make progress. Failure to agree would not only spoil the spirit of cooperation between the institutions, it would also be detrimental to the further development of an integrated financial services market, which relies heavily on the availability of executive powers within the context of framework legislation agreed by codecision. I would also add that other policy areas would be affected from a lack of agreement on comitology.

Before concluding, I would like to reiterate my call on both Parliament and the Council to work constructively towards a solution. The Commission from its side will assist wherever it can to ensure that the sense of urgency that is now being given to this matter does not evaporate. The Commission has long recognized the need for a solution to be found and I believe that the conditions are now ripe for this.

I look forward to hearing your comments.

  Alexander Radwan (PPE-DE), rapporteur. – (DE) Mr President, ladies and gentlemen, Commissioner, it is for once no mere formality that I start by thanking my colleagues, the shadow rapporteurs and all members of the Committee for having made it possible for us all to work together on this directive in a constructive manner. I would also like to thank the Commission for working with us over recent years – for this draft did not come into being overnight – and enabling us to make progress. I see this as being, perhaps, a good example of how we can work together on making laws in the future.

This evening, I would like, at the outset, to point out a fly in the ointment. I agree with the Chairman of our Committee that we are engaged in making laws that will have far-reaching effects on Europe’s financial sector and small and medium-sized businesses, and, speaking on behalf of our President, I would remind you, Mr President, and the Bureau too, that this House possesses full legislative powers in this area. Perhaps you could look through the agendas for this week and find another subject, another position where we adopt acts under the codecision procedure, unless you really do think that everything we discuss this week is of high priority. I refer here also to the Doorn report, which also has to do with Parliament’s full legislative powers.

In dealing with this directive, Parliament has always emphasised that it is important to us that certain areas be made Basel-compatible. Basel is an international agreement. We have always seen the small business sector as important. It was always important to us that there should, in this regulatory framework, be special arrangements made for small banks, in order that they should not be squeezed out of the competition; take for example the partial application, or the demand in the report that banks opting in future for the Standardised Approach, should not be discriminated against by the national supervisory bodies. Another example I would give is that of the granularity agreed on in Basel and present in the Commission proposal, but which is absent from Parliament’s resolution and must not be re-inserted through the back door. I would point out that this needs also to be transposed by the national parliaments and incorporated into supervisory practice.

There are a number of new things in this directive that will change financial supervision in Europe, for example the Lead Supervisor System, under which one supervisor can overrule another when approving internal ratings, and which puts us on the way to a European market. Another example, and one on which there was a great deal of consensus in this House, was the disclosure of ratings, which is of particular importance to small and medium-sized businesses, and I am grateful to the Council for eventually accepting Parliament’s proposed compromise on this. There was lengthy discussion of intergroup exposures. I maintained from the very outset that banks’ internal loans should receive equal treatment based on the risks involved, for this document is about risk rather than competition. It is because different structures already exist in Europe that we should not prescribe structures for this, for we cannot say that one is better than another. We must, though, weigh up their merits. Here, too, we have come up with a compromise, and so we have achieved a good result as regards the substance. Comitology is a weak point and will remain one. I want to emphasise that the Committee on Economic and Monetary Affairs has always given the Lamfalussy procedure’s comitology its backing, believing this to be right and important in terms of quick legislation that meets the needs of the market, but we had always considered the former Lamfalussy agreement in the light of a future constitution, by providing for a callback mechanism. Today, we need no new debate on the Constitution, but if, in future, we come to draft more directives using Lamfalussy comitology, we will need to conclude a new agreement on the subject to secure Parliament’s rights by providing that, where we delegate them, we can also ‘call them back’, by which I mean better scrutiny, more options for definitions and also the general withdrawal of the delegated power if things start to go wrong.

As I will not be able to take the floor when we discuss the Doorn report, let me briefly say that there is one area that is excluded from its resolution. The Committee on Economic and Monetary Affairs will, though, in future, be responsible for the International Accounting Standards. As I see it, though, even if this is not what we decide tomorrow, this agreement should also include the international convention on accounting standards. It is not acceptable that, in the future, international bodies should define standards and that these should be implemented without scrutiny by this House. Let me just remind the House that we had a visit some time ago from some people from the Board of the IAS, who informed us that they were working on standards for SMEs. We will not – and I say this not least for the Commission’s benefit – accept these standards without the necessary scrutiny. I hope we are on the right track here, and, to the Presidency, I would say that I hope that it will take on board the compromises we have put forward today. I am optimistic, not only as regards the date for the sunset clause, but also as regards the recitals, about our chances of achieving a good compromise this week and that we will succeed in our aim of getting this adopted at first reading. What I hear from many Member States is that they are doing these things already, and I believe we are on the right track towards achieving this. It is down to the Council.

  Harald Ettl (PSE), draftsman of the opinion of the Committee on Legal Affairs. – (DE) Mr President, ladies and gentlemen, the Committee on Legal Affairs welcomes the compromise that the rapporteur has hammered out. The author of the position expresses her support for most of the objectives and the need for the updating of the provisions to take account of the considerable progress that has been made in the techniques of risk assessment and financial services management, while also proposing amendments that might help to simplify the system of equity capital requirements. A number of amendments have to do with national discretion, which is to be removed for the sake of greater regulatory harmonisation in the internal market. I might add that many of these deletions have been recommended to the national supervisory bodies.

The draftsman of the opinion also takes the view that it was very definitely the right thing to do to take Article 47(2) of the EC Treaty as the basis for this proposal. As a directive is the instrument best suited to achieving the desired objectives, the principle of subsidiarity is complied with, as is the principle of proportionality, since the directive goes no further than doing that which is absolutely necessary.

I would like to add a number of comments on comitology from the point of view not only of the Legal Affairs Committee, but also of the Committee on Economic and Monetary Affairs, and will be commenting on them later on. As financial markets and banks are liable to undergo rapid change, with new products and combinations of products constantly having to be developed, the law on banking and banking supervision must also be capable of being further developed. Basel II must not be allowed to degenerate into a framework from which one chooses the financial instruments one fancies, but must instead never lose sight of the need to protect creditors, investors and consumers. The dialogue between legislators, supervisors and banks, both at national and European level, referred to in the Lamfalussy procedure can also help to keep supervision appropriate to the function concerned. I will enlarge on this point later on.

  José Manuel García-Margallo y Marfil, on behalf of the PPE-DE Group. – (ES) Mr President, Commissioner, welcome to our Chamber. My role in this debate consists exclusively of explaining what has happened in this Parliament during comitology and expressing my full support for the position of the rapporteur, my colleague Mr Radwan.

The problems in relation to comitology began some years ago now, when the Commission presented Parliament with the financial services action plan, which proposed the rapid implementation of forty-something measures in the field of financial services.

We were told at that point that the ordinary legislative procedure was too slow to keep up to date with the speed of the financial markets. I spoke here to say that, in the vast majority of cases, Parliament was not responsible for this delay, but rather the Council.

The next step was what we know as the Lamfalussy report, after the person in charge of drawing it up, who, with a view to providing a solution, to adapting the speed of the procedure to the speed of the markets, proposed splitting the legislation into two levels. First level: general principles, basic guidelines. Second level: concrete legal rules. Level one, codecision. Level two, complete exclusion of Parliament. We were asked to surrender the prerogatives that should be the privileges, the basic rules, of any European Parliament.

It is quite understandable that the European Parliament should express its suspicion. We simply wanted to be in the same position as the Council. In the event that boundaries were overstepped, in the event that the attorney did not keep to the limits of their mandate, we wanted a call-back.

It was not possible at that time, because the Treaties did not allow it, and we were waiting for the Constitution. We have reached a transitional situation — and I would stress transitional — and I would therefore call for the sunset clause that Mr Radwan has mentioned. Until then it will be necessary to reach an agreement that harmonises the two objectives: speed in the legislative procedure and respect for Parliament’s powers, powers which, as is the case for any Parliament, have been hard won over time. I would like finally to explain our suspicion by recalling a Spanish politician renowned for his skill and ability in fiddling the rules, who said, ‘you make the law, but leave it to me to make the regulation’. That is the danger we are worried about.

IN THE CHAIR: MR DOS SANTOS
Vice-President

  Harald Ettl, on behalf of the PSE Group. – (DE) Mr President, let me start by saying ‘thank you’ to the rapporteur for the willingness to cooperate that he has demonstrated, which enabled Social Democrats’ main concerns to be accommodated. We believe that banking supervision must be internationally agreed and of the same kind throughout the EU, and that, in particular the banks’ equity capital required by law must be more rigorously adjusted to take account of commercial risks. It is only in this way that the savers can be put in a more secure position and their savings safeguarded against the event of their bank failing.

Modern banks both manage private households’ assets and keep their accounts, while also being their advisers and agents on the financial markets. The economic efficiency of the finance they provide and of the capital they invest is dependent on their remaining competitive. The finance they provide plays an important part in the further development of the EU through its infrastructure, housebuilding, municipalities, energy industry and, not least, its small and medium-sized business. Basel II includes objective points of reference for assessing the risks involved in providing this finance, along with the banks’ associated equity capital costs and the interest charged to debtors.

This picture is completed by the adoption of my amendments on easier retail credit for SMEs and the liability of regional and local authorities in the computation of the risk element. Basel II should not, then, result in finance becoming harder to come by or more expensive. The banks also bear an economic responsibility, and Basel II must not be misused as an excuse to the detriment of debtors or at their expense.

Basel II is also intended to create a level playing field for competition between the big banking groups and the savings banks and credit unions that operate on a regional basis, and it was for that reason that I pressed for the greatest possible objectivity in the treatment of what are termed inter-bank loans. I would like, not least, to highlight what is now the dual responsibility of the national supervisory agencies as regards both the monitoring of the banks’ more precise risk assessment methods and supporting banks that operate in more than one country when the supervisory authorities in both countries cooperate with one another.

Last but not least, I would like to revisit the subject of comitology. The rules on information and transparency that Parliament is demanding for Basel II are actually taken for granted in modern legislation, and that should also be reflected in the right of recall. What we want from the Council is a guarantee that, in two years’ time at the latest, there will be a solid agreement enabling Parliament to continue to exercise its democratic rights and responsibilities.

  Wolf Klinz, on behalf of the ALDE Group. – (DE) Mr President, ladies and gentlemen, the object of this draft directive is the implementation of Basel II in the European Union, thereby establishing a basis on which the financial markets may be made more stable. Banking supervision can be made more efficient and greater weight attached to the risk element involved. The directive will also impose minimum standards for high-risk businesses.

In the Committee on Economic and Monetary Affairs, we have discussed Basel II in depth and worked our way through some 900 amendments, along with a whole array of compromise amendments that the rapporteur, Mr Radwan, drafted together with Mr Ettl and myself. I would like at this point to express my gratitude for the high degree of trust in all this and for the constructive cooperation that we enjoyed. In the ensuing troika discussions, the Council accepted many of Parliament’s amendments, and we managed to extract several concessions and compromises from it, with the effect that the technical substance of Basel II can be regarded as balanced. Speaking as a Liberal, I am particularly glad that we have managed to come up with rules that are capable of ensuring fair competitive conditions between the various groups in the banking sector.

This is a package that the Liberals and Democrats can strongly endorse. It does, however include two amendments on Islamic loans and mortgages, and one on energy companies, to which we cannot give our backing, for Basel II was not intended to be used as a means of putting in place special safeguards for certain sectors of industry or creating special conditions for them. Despite that, we will, as a group, be voting in favour of the whole package.

It was our group that introduced the amendments relating to the trading book. We see it as a very good thing that the good and fast work done by the Commission has now made it possible for these to be adopted in the course of the voting on Basel II, thus ensuring consistent implementation in this area.

Discussion of Basel II has of course touched on the subject of comitology, something about which all speakers have already had something to say. The importance and usefulness of the comitology procedure is not a matter of dispute for any of us; it is a means whereby the rules implementing basic acts may be speedily enacted, but it is a procedure that must not be allowed to undermine Parliament’s prerogatives, for the enhancement of which the Constitutional Treaty makes provision. Uncertain though the future of that Treaty may be, Parliament’s concerns still matter and are still relevant. As was only to be expected, the troika negotiations on comitology proved to be particularly problematic. Weeks of pressure on our part prompted the Council to create a working party called ‘Friends of the Presidency’, which Commissioner McCreevy mentioned, thereby acknowledging for the first time the need for a new inter-institutional agreement and for action to be taken. We cannot, though, be satisfied with mere promises. What we want is a definite date by which there will be a new inter-institutional agreement to reinforce our rights

To the Council, we propose 1 January 2008 as the date for the sunset clause, and now await its response, which we hope will turn out to be favourable.

  John Whittaker, on behalf of the IND/DEM Group. – Mr President, capital requirements are regarded as useful in preventing bank failure because they make shareholders bear more of the cost of failure. The international Basel II proposals, which this directive implements, are designed to achieve a better match between capital and risk than the simple 8% capital asset ratio of Basel I. However, no amount of bank capital, short of 100% of risk assets, can safeguard against failure. The minimum amounts of capital specified in any regulatory scheme are arbitrary.

As Mr Radwan stressed, other problems are the extent to which risk-spreading amongst individual banks of a banking group should imply a reduction in regulatory capital, and the difficulty of defining the division of responsibility across national supervisors. There are no objective answers to those vexed questions. For that reason I question the competence of this Parliament in this field. It is ridiculous that we should be involved in the minutiae of this directive given how complex and yet how important it is. But this is how Parliament works, with all of us Members, however experienced or inexperienced in the arcane arts of banking regulation, expected to make hundreds of reasoned judgments on questions, many of which cannot be answered in any objective way.

The rapporteur recommends that, owing to doubt, this directive should be reviewed in the future. The banking industry does not need that. Banks spend their time dealing with risk and uncertainty. Adding further uncertainty over future regulation will not help them to plan or look after our interests as customers and shareholders.

The bottom line is that there is no right amount of regulatory capital. If we kept that in mind when legislating, we would come up with rules that are a great deal simpler, and the Members of this Parliament would be spared from the farcical exercise of voting on hundreds of amendments.

  Eoin Ryan, on behalf of the UEN Group. – Mr President, I should like to thank the rapporteur, Mr Radwan, for his timely report.

The financial services sector has become very sophisticated at risk management and so the regulatory framework has to respond to the times. I am very satisfied with the report on the table today. It acknowledges the fact that covered bonds are a global capital markets product and are no longer either a European or domestic product. I believe that any alternative to that would handicap the development of the sector, which has significant commercial potential.

According to a study conducted by JP Morgan, Basel II could increase the number of high-yield bonds – and especially covered bonds – being issued. That would be advantageous from an Irish perspective because Irish covered bond issues have the highest credit rating. Therefore it is important that Basel II upholds current market practice in the covered bond area.

Banks have a long history of lending money and we sometimes take it for granted that they are fully prepared for the traditional risks such as credit and market risks. However, nowadays banks are facing increasingly unpredictable operational risks, which are difficult to manage. Under Basel II it would become essential that risks analytics are timely assigned to financial services operations. It would be interesting to know what the expenditure of financial services institutions will be on analytics in the EU after the introduction of Basel II. Therefore I welcome the proposed review of this regulation after four years.

At the same time, however, it would be unwise to underestimate the importance of risk management in the traditional areas of credit and market risks. In today's economic climate there is a growing need for detailed analysis of the effects of recession and other financial shocks on national economies and the EU. Under the standards set by Basel II the banking sector will have to invest in the development of IT systems capable of modelling in-depth credit risk analysis. The way in which financial services are conducted has changed and will continue to change. However successful risk management cannot be solely based on a compulsory reply to regulations. It requires a sound understanding of what is good for business and the standard of best practice.

  Hans-Peter Martin (NI). – (DE) Mr President, for many small and medium-sized businesses, Basel II is a matter of life and death. They worry a great deal about it; there has been a great deal of discussion about it. I believe that they should have complete confidence in the rapporteur. Even though his report has accomplished many things, there is one aspect I would like to mention in the short speaking time available to me, and that is that whether there really will be fair competition among sources of credit, and then perhaps also among those who apply for it, will be dependent on what is agreed in this House. It is fortunate that we are only at first reading stage. I do think, though, that Amendment 140, which is an attempt to introduce more transparency by calling on the credit institutions to provide the SMEs and other firms that have applied for loans with written clarification of how they arrived at their rating decisions, will be essential if the market is not to be even more distorted. We will then have to wait and see what comes out at the other end – the right degree of transparency or excessive regulation. It would be nice if we could lay down a timeframe for this, at least at second reading. I would certainly be in favour of a sunset clause, about which everything has in any case already been said, and I hope that Mr Radwan’s report gets through in such a shape as to maintain the balance he is seeking.

  John Purvis (PPE-DE). – Mr President, I too should like to compliment Mr Radwan on the extremely able way in which he has steered this complex directive to this advanced stage.

We all hope that the Council of Ministers will now be able to take the steps needed to make a first reading agreement possible. Surely the Presidency can make a supreme effort and undertake to reach a conclusion on the comitology issue to a mutually agreeable timescale. So much has been agreed on the complex, technical issues that it would surely be a shame – in fact, an absurd embarrassment – not to close the remaining gap. It is surely reasonable for Parliament to aspire to a role in the legislative process which is equivalent to that of the other branch of the legislature – the Council. Our constituents expect that. Indeed most of them assume that is already the case. All that we ask is for the Council to assess that aspiration with dispatch.

The industry needs timely legal certainty and will not readily forgive either of us – Parliament or the Council – if in the face of all common sense we allow this important directive to fail for what might appear to the outside world to be interinstitutional niceties.

I now turn to international considerations. Almost every European banking, insurance and asset management business will be affected by this new regime and will have to shoulder the costs of adjusting their systems. In America, on the other hand, only the largest international banks will have to comply. The competitive benefits will probably induce at least some of their medium-sized competitors to adopt Basel II too. However, even the smaller European financial institutions will have to comply and bear quite substantial financial costs in so doing, while their American competitors, such as asset management firms, will not have to. How will the Commission ensure a level playing field for our financial institutions of all shapes and sizes in the global marketplace?

  Pervenche Berès (PSE). – (FR) Mr President, Commissioner, ladies and gentlemen, we have before us an agreement at first reading on a text that could scarcely be more complex, in the context of which 304 amendments will be easily adopted. That is, if Parliament can work intelligently when it has to.

That being said, what is at stake in the text, as everyone can see, is absolutely huge. The text strikes a balance between an approach sensitive to risk and one that is sensitive to real challenges in terms of competition, whether within or outside the Europe Union.

I will make three remarks. The first is that, as regards the content of this text, any aspects enabling us to assess and take better account of the risks taken by the banking sector – and, more generally, by the financial institutions sector – are steps in the right direction, insofar as they are backed up by reasonable consolidation and, above all, with the implementation of effective supervision mechanisms. That is the entire debate we have had on the size of the banks, the internal group consolidations and risk evaluation. I believe that, behind the way in which this matter is handled, the issue of knowing how to implement a lead supervisor at European level remains altogether crucial, and we will have to return to it over the next few years.

I have one word to say on the subject of SMEs: I dare to hope that the solution proposed is a step in the right direction and that it will not, on the contrary, lead to a shortage of credit for SMEs. The debate is open, but I personally have my doubts on this matter.

The second point I wish to make, which my fellow Member, Mr Purvis, spoke of just now, concerns international relations. I know, Commissioner, that you attach great importance to them and, quite frankly, since we have been following this matter, I have been struck by the imbalance that exists in the way the integration and appropriation of the Basel II Agreements are perceived. We know what role the Americans have played in defining, and conducting negotiations on, Basel II, and today we are witnessing a large question mark hanging over the schedule for, and the scope of, this agreement on the other side of the Atlantic. Behind all of that, a challenge in terms of competition for our economies exists that we cannot overlook, and we are counting on your vigilance in order to prevent this from leading to a situation that results in the European Union being discriminated against.

My final point concerns the issue of comitology, which all my fellow Members have spoken about. Firstly, the Commissioner told us: ‘Let us not take these agreements hostage because the markets would not understand’. Yet as you know, the markets do as they please. They will say to us today: ‘It is imperative that you adopt this text. If you do not, it will be a disaster’, and then tomorrow, when they disagree with the way in which you have implemented Level I of the agreement, they will come to see us and they will then be quite happy that a Parliament exists where people can re-examine the way in which the comitology measures have been adequately or inadequately implemented. Let us not listen too hard, therefore, to what the markets have to say and let us do our job as legislator. My final point will be to express my delight that the UK Presidency has implemented a Friends of the Presidency Group. I believe that that is a good way of finding an agreement. I simply regret the fact that the Council is not here to participate in this important discussion in the debate between the institutions.

  Nils Lundgren (IND/DEM). – (SV) Mr President, the Capital Requirements Directive updates a recurrent conflict of aims in EU cooperation, a conflict of aims that we all have reason, as a matter of principle, to analyse and debate before we adopt a position.

On the one hand, there are often good reasons for introducing common rules at EU level if the internal market is to operate efficiently. Differing rules between one Member State and another in crucial areas entail high costs and, thus, less prosperity. That also applies to the financial market.

On the other hand, there are strong reasons for not forcing the Member States to adopt common rules that then become part of our acquis communautaire and thus prevent individual countries from taking the lead and developing systems of rules. A large part of our economies’ dynamic is based upon the institutional competition we have between countries when it comes to developing efficient and growth-promoting institutions. Often, expressions such as best practice and benchmarking are used, reflecting knowledge of this important process.

Unfortunately, this Chamber devotes little or no attention to institutional competition. Where Basel II is concerned, we are, however, talking about an extremely global market involving an extremely well-informed group of actors who can take action at a moment’s notice. In this market, there is little scope for special positions at EU level. When it comes to Basel II, individual countries should operate independently within the framework of this cooperation between central banks. There is really no reason for mixing the EU and this Parliament up in that process. We are not designed for that purpose.

Allow me finally to agree with other speakers about how unfortunate it is that Parliament is trying to use this report as part of the constant institutional power struggle between the EU’s institutions. The June List does not wish to help strengthen this Parliament’s power.

  Ieke van den Burg (PSE). – (NL) Mr President, I understand that I can also use Mr Goebbels’ speaking time. As a number of Members have already had something to say about the content of this dossier, I do not propose to say too much about it; I would, though, like to say something about the procedure, but not before getting something off my chest.

To outsiders, this is an impenetrable technical dossier with no fewer than 800 amendments or thereabouts; a document at least 10 cm thick. You would be forgiven for wondering what Brussels is up to. Where is the indignation, where are the critical articles in the press? Then again, this is not about the protection of workers against skin cancer through exposure to too much sunlight – a subject about which everyone has an opinion and which, in the previous part-session, came in for denunciation from every quarter .

No, this time round, it is about the protection of invested capital. Is this, then, in some way, an entirely different and nobler goal? Is this, then, something in which Europe is allowed to be closely involved? No selective indignation this time round, then. Fortunately, that is also true for me: I have nothing against this dossier, but let us, in future, not apply different standards when it comes to protecting workers.

I would now like to turn to the report. I am pleased and also proud that we have managed to prepare this complex dossier, including the added rules for the trading book, so quickly and efficiently in our Committee on Economic and Monetary Affairs, something on which all those involved deserve many congratulations. This determination is something which the United States, in particular, is following with a measure of astonishment and jealousy. That is what we need in order to make Europe competitive and attract investments for growth and employment; that is what matters in the Lisbon Strategy.

The way in which we are going about this, though, with this plethora of amendments and technical appendices, is not an approach that appeals to me, nor do I believe that we will thereby achieve better regulation. We have in the financial markets regulations just developed a more intelligent working method referred to as the Lamfalussy procedure. According to this procedure, framework legislation is adopted by the EU institutions whilst technical details are delegated to the different committees in the comitology and to the European groups of supervisors who, in turn, delegate in very close dialogue and consultation with market operators and other stakeholders.

Not only is this necessary in order to lessen the burden on employers, but also enable a much more flexible and adequate response to the developments in these dynamic markets. I am a forthright advocate of this approach and believe that we can use it to find effective solutions for better regulations in other areas too.

Paradoxically, we have not yet applied the Lamfalussy method to this capital adequacy directive, but are now laying down everything, including the appendices and mathematical formulas, at the level of legislators as a group. Instead, we would prefer, after the directive has entered into effect, to tie the possibility of injecting this dynamism and flexibility into the directive to conditions and to a deadline.

I would like to make it clear that that is not, I repeat not, because we are opposed to the method, but because a fundamental condition is still missing from the Lamfalussy procedure, and by that I mean Parliament’s call-back right. I think that that should be spelled out once more, which is what we intended to do in this directive in order to crank up the pressure so as to obtain this formal call-back right. We do not care how this is done. The problem was around back in 1999, before the conventions were introduced to prepare treaty changes, and there now has to be a structural solution to the problem. The ball is in the Council’s court, and we hope that the ECOFIN ministers will make it clear to their General Affairs and Foreign Affairs counterparts that a solution must be found, come what may. I think that that should be the key message coming out of this discussion.

  Astrid Lulling (PPE-DE). – (FR) Mr President, I willingly join others in thanking the rapporteur, who has finally been able to demonstrate a sufficient ability to listen in order to reach an agreement which, while not to everyone’s satisfaction, is to the satisfaction of a large number of us. The highly technical nature of this directive could not disguise its fundamental character; the implementation of the Basel II Agreements at Community level is absolutely crucial for the banking industry in Europe.

Alongside other fellow Members, I have fought to oppose a logic of extreme harmonisation in the field of mortgage lending, and I am delighted to have won my case. The mortgage lending market, which is a German concept, is booming, particularly since the euro was introduced. With a sum of around EUR 1 600 billion, it is the largest sector of private lending. The fact is that maintaining the provisions that were initially envisaged would have meant bringing this activity - which involves the main financial centres of the European Union: London, Dublin, Paris and Luxembourg - to an abrupt end.

Covered bonds are one of the rare European products that Americans envy us; let us not turn them into an instrument doomed to obsolescence by applying overly restrictive criteria preventing the banks from using them for the purpose for which they are intended.

As mortgage bonds feature among the most secure financial instruments and benefit from the highest bond ratings, no one would have understood if we had headed towards a state of inflexibility and not allowed any leeway with regard to national regulation. The definition of mortgage bonds and the collateralisation threshold have, therefore, finally been put together in such a way as to be compatible with the existing items of legislation. That decision was necessary, even though I regret the fact that, in terms of lost given defaults, the directive goes far beyond what is required, with rates well above the losses that are, in fact, absorbed by the credit institutions.

I will conclude by making two remarks. Firstly, I note once again that the consolidation and harmonisation approach leads to a dead end. Let us not confuse the need for a common framework with egalitarianism. Secondly, the dialogue with the financial stakeholders can be conducted in complete transparency and to everyone’s satisfaction.

  Gunnar Hökmark (PPE-DE). – (SV) Mr President, I wish firstly to thank Mr Radwan and also congratulate him on the major, complicated and important piece of work he has done.

If there is any area in which we see the importance of European cooperation, it is in this area in which we are creating a large financial market. To my Swedish fellow Member who spoke previously, I should like to say that, if we did not have European cooperation, we should not have the opportunity to exercise democratic and parliamentary control over the regulations designed here. We now have stability, efficiency and predictability in the common financial markets. The directive will also entail more flexible risk assessment which – and this is important to remember – is basically good for European consumers and businesses. What is important, as has been mentioned previously in this Chamber, is that it also entails identical ground rules in the global market and in relation to the American market. It is also important, however, that it means identical ground rules in another sense, whereby we shall see new, developing financial institutions in the dynamic financial markets. In the same way as we have seen a convergence between banks and insurance companies in recent decades, we shall see new products and new structures.

It is important, then, that this directive should not in practice hamper dynamic development in the market but enable new forms of business to develop and compete on equal conditions. It will be an important task for the Commission, as for the debate here in Parliament, to follow up developments in precisely this sense. I am grateful that we have been able to obtain transitional rules that give the national authorities the opportunity to affirm this development but, once the directive is properly in place and its rules applicable, it will be one of Parliament’s and the Commission’s tasks to ensure that there is an openness to change that positively accepts the variability of the financial markets. Otherwise, we shall become less competitive in Europe. That is why this is an important task.

  Andreas Schwab (PPE-DE). – (DE) Mr President, Commissioner, ladies and gentlemen, for small and medium-sized enterprises in Europe, Basel II has become a byword for the way in which it becomes more difficult to get credit the more problematic the situation one is in. Had Basel II been accepted in its original form, that would of course be an extraordinarily bad sign for Europe’s present economic state, and so I want to express warm thanks to the rapporteur for our group, Mr Radwan, for the extraordinarily difficult job he has done in this regard. I see this directive, in the form in which it is presented in his report for the Economic and Monetary Affairs Committee, as providing us with an excellent means of dispelling the fears of small and medium-sized businesses.

The second point I want to pick up is the same as that addressed by Mrs Berès. It does not often happen that I agree with her, but on this occasion and in this matter I do. It is astonishing that the American banking sector, from which this directive was originally derived, is now delaying its application to the smaller American banks. Great believer in the trans-Atlantic relationship though I am, I do think we need to take care that economic harmonisation in Europe does not take us down different roads from those taken on the other side of the Atlantic. We will be the strongest economic area in the world only if we make changes at the same pace as they do.

Let me conclude by expressing my agreement with what Mr Radwan had to say about comitology. The right message to send to the many members of the European public who complain that it is not clear who decides what in Europe, is that it is here in the European Parliament that decisions of a political nature are taken, and that is why the sunset clause, which is to be in force for two years, enjoys my support. In 2007, there will be three more directives that have gone through the Lamfalussy procedure: the directive on responsibilities in relation to prospectuses, the Market Abuse Directive and the one on financial conglomerates. All three will be there, and all three, or so I believe, need to bring clarity and stability to the financial markets. This is where the European Parliament can play its part, and so I welcome this directive in the form in which Mr Radwan has presented it.

  Jean-Paul Gauzès (PPE-DE). – (FR) Mr President, Commissioner, ladies and gentlemen, I would like first of all to congratulate Mr Radwan on the quality of his report in a field that is very technical, but crucial for banking. The draft directive implements or updates the general security principles of the banking system and, in particular, as regards the solvency of credit institutions.

Two specific aspects will warrant more in-depth consideration in the future: the division of risks, in order sensibly to control the proportion of regulatory own funds validated by a single signature, and the harmonisation of rules relating to the internal control systems in order to take account of the circumstances of cross-border banking groups. In this respect, I would have liked – and I had tabled amendments to this end – more consideration to have been given to the European dimension where cross-border internal group lending and supervision on a consolidated basis were concerned. I acknowledge, however, that the draft directive, as amended by Parliament, strikes the greatest balance we could realistically envisage at present between the responsibilities of the regulatory authorities in the home country and of those in the host country with regard to banking groups carrying out cross-border activities.

In the unfortunate absence of the Constitution, the proposals made by the Council Presidency seem to me pragmatically to preserve the legitimate rights of Parliament. For their part, the banks have, over several years, harnessed human, financial and technical resources in order to keep to the deadline. The statutory deadline must therefore be retained, whatever questions may be asked by the United States. It is important that the directive enter into force on the date scheduled. That is why I hope that Parliament adopts the draft submitted to it and that an agreement is reached at first reading.

  Paul Rübig (PPE-DE). – (DE) Mr President, ladies and gentlemen, I want to start by telling the Commission that this is where the work begins. Mr Radwan may well have produced a splendid dossier, but what matters is that Commissioner Verheugen should give his attention to the question of how best to introduce this directive in Europe, how to prevent insolvencies and encourage company formations. Commissioner Kovács’ homework is, in my view, to give some thought to how, in future, businesses may write off more minor items – the rates in America, for example, are substantially higher – and to how they are to handle the carrying forward and back of losses. This is where the Commission should, with competition in mind, intervene creatively, for this Basel II project is, after all, meant to be about rationalisation and reform; it is meant to save costs rather than to bring a whole new wodge of them into play, and for that reason, here too, I recommend benchmarking and best practice.

  Charlie McCreevy, Member of the Commission. Mr President, I thank the Members for their very constructive comments regarding this very important piece of legislation and, as I said at the outset, I congratulate Mr Radwan and the shadow rapporteurs for their work and the deep, intensive and very technical work done by the committee on this very complex subject.

I agree with those speakers who stressed the importance of this particular directive. What will be good for the financial institutions will be good for economic growth, employment, the economy and for increased financial stability. Sometimes members of the public look at matters relating to banks and financial institutions with rather a jaundiced eye and see them as charging excessive interest and making huge profits at their expense. However, if it were not for banks and credit institutions, there would be no great economic success. Therefore it is in everybody's interests – including the various actors and stakeholders – that we have a properly regulated financial sector and that risk is properly assessed. It is also important for depositors. This is the flipside of lending, since, if no one placed money in banks, there would be no money to lend. For the very same reasons, it is also important for shareholders and investors. It is also important for the employees of the financial institutions. Therefore, what will be good for the banking sector will be good for us all.

A recent study estimated that banks would have reduced capital requirements of about EUR 80 to 120 billion as a result of the proposed directive. It is also said that this directive will reduce the capital requirements for loans to SMEs by more than 50%. This Parliament has tabled amendments to our proposals that improve the rules for retail and SME lending still further. Some speakers referred to the question of Islamic mortgages. We need rules to ensure that such loans do not fall between the cracks and escape regulation altogether.

Mr Ryan and Mrs Lulling raised questions about mortgage bonds or asset-covered bonds. I note that the further flexibility introduced by Parliament's amendments will reduce regulatory constraints for so-called covered bonds still further and this is a good result for the markets.

Some other Members – in particular Mrs Berès and Mr Purvis – raised the question of a level playing field for Europe and the United States. Firstly, I would like to point out that the small and medium-sized American banks have asked for the benefits of Basle II also to be extended to them and I understand that the United States is on the verge of making such proposals within the next month.

Secondly, as regards this level playing field, all the big American banks which are in direct competition with European globally-operating banks will be covered by the Basle framework.

I take on board, however, what Mr Purvis and Mrs Berès said, not only in this particular regard, but also in other areas relating to the United States. I know that Mrs Berès has taken a particularly keen interest in this matter and it is something that I bear in mind.

Just about every speaker referred to the general question of comitology. Mr Radwan can take particular pleasure and pride in having brought this issue to the forefront of the debate and in having extended it into other areas as well.

As regards comitology, I note with satisfaction that the rapporteur is putting forward a helpful and constructive proposal here and I hope that, not only with this directive but in other areas as well, we can bring the matter to a successful conclusion, with the cooperation of the various actors.

I am also pleased to inform you that the Commission can fully support the compromise which has been reached on these amendments. The package which is now before the plenary is a fair compromise, taking into account the discussions between the Council and Parliament, and it will also enjoy the strong support of the banking industry. Furthermore, the solutions proposed are well-balanced and respect the Commission's initial intentions for this legislation.

  President. The debate is closed.

The vote will take place on Wednesday at 12 noon.