UK can ring-fence banks under new EU rules -Barnier

The UK will still be able to ring-fence its retail banks and impose extra capital limits on them under the European Union's proposed capital and liquidity rules, the bloc's financial services chief said.

Michel Barnier, the EU's internal market commissioner, told the Financial Times on Friday he had split his proposal into two to give governments such as the UK and Spain more flexibility to impose additional demands on parts of their banking sector.

The draft laws, unveiled on Wednesday, would make the EU the first jurisdiction to begin implementing the new global Basel III accord, which aims to make banks safer by making them hold more and better quality capital against unexpected losses. [ID:nL6E7IK1K6]

The UK and other countries such as Sweden previously raised concerns that the draft EU laws would make it difficult for countries like Britain to tighten capital controls on banks beyond the levels which had been agreed internationally. [ID:nLDE75K1RQ]

Some investors had also believed that Barnier's Capital Requirements Directive 4 would bar the UK's Independent Commission on Banking, chaired by John Vickers, from pursuing its bid to force banks to ring-fence their retail operations.

"It seems (the Vickers Commission) may be proposing 10 percent for retail banks. That would be possible in my proposal. We think we have the flexibility we need," he told the FT. "We do think the (Vickers) proposals can be integrated into our framework."

He also said that his proposal "foresees a much expanded use of the countercyclical buffers" that would allow countries like the UK to pile extra capital requirements on top of the 7 percent for "financial stability" reasons.

"In the directive are all the issues relating to supervision where national flexibility is needed. There is flexibility for supervisors on the buffers," he said.

Barnier added that he was confident that his proposal would eventually win the full support of the UK. "It becomes more credible if we have the UK on board, given the support of its financial sector," he said