By Huw Jones
LONDON (Reuters) - Global regulators will make significant changes to ease the impact of new bank capital rules and the European Union should not turn its back on the negotiations, the bloc's banking watchdog said on Wednesday.
EU officials have threatened not to apply the new bank capital rules if they lead to big hikes in capital requirements, fearing it could lead to banks restricting the flow of lending to the economy.
Euro zone banks like Deutsche Bank <DBKGn.DE>, which is already facing question marks over capital, are likely to be hit hardest unless changes are made.
Andrea Enria, chairman of the European Banking Authority, said he expects the Basel Committee of global banking supervisors to make big changes to ease the impact of the planned rules when it convenes this month.
The committee meets in Chile on Nov. 28-29 to finalize the rules which set curbs on models used by some banks to determine capital buffers after regulators found huge variations in calculations.
"We do have a problem that needs to be fixed. The status quo is not a viable option," Enria, who takes part in Basel meetings, told the European Parliament's economic affairs committee.
He was speaking ahead of a warning from the lawmakers, who are expected on Thursday to back a resolution stating that the new Basel rules must not lead to big hikes in capital. European Parliament approval would be needed for the new Basel rules to be applied in the EU.
Global banks have said that without changes, they face huge capital hikes, a view Basel's secretariat has disputed, and Enria said he was confident there will be "significant revisions".
"I expect the final proposal will be much closer to what we think they should be," he told the lawmakers.
Daniele Nouy, head of the European Central Bank unit which supervises top euro zone lenders, later told the EU lawmakers it was crucial that Basel's reforms do not end up with a big overall increase in capital requirements.
"But it is still too early to confirm the outcome at this stage," Nouy said.
As originally proposed, banks in the EU would be hit harder than elsewhere due to the impact of a new "floor" to stop capital requirements from falling too low, Enria said.
"The output floors... would have a significant adverse impact on low risk business, for instance residential mortgages," Enria said.
He said the EU had a duty to do its utmost to reach a deal at Basel given fragilities in the banking sector, and not to "leave the room".
The Basel package also toughens up capital requirements for the risk of big fines from misconduct, but Bank of England Governor Mark Carney has said this proposal will be significantly eased as well.
(Reporting by Huw Jones; Editing by Keith Weir)