BRUSSELS – European Union finance ministers agreed unanimously Tuesday to require banks to build higher defenses against future financial shocks in the hope of protecting taxpayers from paying for expensive bailouts.
Compelling banks to increase their capital reserves is intended to avoid another financial meltdown such as the one brought on by the collapse of U.S. investment bank Lehman Brothers in 2008. Several European governments at the time had to nationalize or help banks hurt by losses on financial markets.
The new rules require lenders to gradually increase their highest-quality capital — such as equity and cash reserves — from 2 percent of the risky assets they hold to around 7 percent after 2015.
The proposal must now be negotiated with the European Parliament so that a common text can be agreed upon.
As had been demanded by Great Britain, which is eager to protect its taxpayers from having to bail out more failed banks, the proposal would allow national authorities to impose even stricter requirements on its banks than those in the proposal, even though a number of other countries had opposed that.
"Increasing prudential capital requirements in one country could lead to a reduction in available credit next door," said Michel Barnier, the EU commissioner responsible for internal market and services.
"It's very important to strike the right balance between flexibility on the one hand and a proper coordinated joined-up approach on the other," Barnier said. "I think in general terms today's compromise does achieve that balance."
The fear of countries who wanted the requirements for all countries to be the same — to have a level playing field, as they put it — was that if capital requirements were higher in Britain, then investors might prefer UK banks and flee from those in other countries.
The rules are being proposed following an international agreement called Basel III, which was negotiated by the world's largest economies. All members of the G-20 have agreed to implement Basel III; if the European Union succeeds, it would become the first entity to institute the new requirements.
The compromise would allow countries to require even greater amounts of the highest-quality capital than called for in Basel III, provided the move is not objected to by the European Banking Authority, the European Systemic Risk Board, or the European Commission — and then approved by the European Council, which is composed of representatives of the 27 European Union countries.
On his way into the meeting Tuesday morning, George Osborne, the British Treasury chief, said an agreement was important.
"This is a time of considerable uncertainty in the eurozone economies," he said, referring to the 17 countries — the U.K. not among them — that use the euro currency. "And that uncertainty is undermining the entire European recovery. And I think we're reaching a point where we've got to make a decision to see the eurozone stand behind their currency. A very important part of that, of course, is strengthening the entire European banking system. And that is what we intend to do today."