European plea on bank capital to fall on deaf ears: sources

LONDON (Reuters) - Global regulators meeting next week will not heed European calls to ease bank capital charges to help finance the region's flagging economy, sources close to the situation said, a stance that could prompt the EU to take unilateral action.

The Basel Committee of banking supervisors from nearly 30 countries will finalize new rules for securitization, or bonds backed by assets like mortgages.

Such asset-backed securities (ABS) based on poor quality U.S. mortgages became untradable in 2007, sparking the financial crisis, and regulators want the banks originating them to set aside more capital to cover potential losses.

The European Central Bank and the Bank of England have repeatedly called for lighter capital charges on top-quality asset-backed securities (ABS) as part of Basel's reforms. This, they argue, would help revive the top end of the ABS market and raise funds for Europe's companies as bank lending shrinks.

The committee will, however, opt for a "wait and see approach" and only launch a public consultation on what could constitute top-quality ABS for consideration in 2015 for possible lighter capital treatment, the two sources told Reuters on Thursday.

"It will be a consultation on criteria for simple and transparent securitization," one of the sources said. Regulators from outside Europe question why ABS not deemed top quality should be penalized.

Basel's stance is likely to disappoint the ECB and Bank of England and could prompt the European Union to break ranks and unilaterally introduce lower capital charges.

The ECB is starting to buy ABS itself in a bid to inject money into the economy but the sector is still small.

Reviving ABS is a core plank of the EU's Capital Markets Union project to lift market-based finance for small companies to boost jobs and growth.

The EU's executive, the European Commission, has the power to propose binding changes to bank capital charges, though some European policymakers would be uncomfortable with departing from globally agreed norms after criticizing the United States for not applying Basel rules in the past.

There could be other friction with Europe as the committee is due to publish its review of how the EU complies with Basel III, a separate package of bank capital reforms.

The review is expected to show that Europe is not fully compliant but the 28-country bloc has argued that tweaks are needed because it is applying the rules to over 8,000 lenders whose structures vary considerably.

The committee is also expected to endorse a proposal requiring banks to hold a "floor" of capital below which they cannot go, regardless of what internal calculations show is the right amount.

(Editing by Pravin Char)