Osborne joins attack on new EU banking proposals

The Chancellor has attacked the European Union's new bank capital and liquidity rules. George Osborne was one of seven European finance ministers – including Spain and Sweden but not Germany and France – who signed a letter to the European Commission demanding a rethink of the plans.

The letter said the proposals, due to be published next month, were "counterproductive to international efforts to strengthen global financial stability". Tough new banking rules, known as Basel III, were endorsed by world leaders last November after months of wrangling. They will force banks to raise billions of euros to comply, although it is planned that the rules would be phased in over six years from 2013.

The finance ministers' argument is that the EU proposals deviate from Basel III and would restrict individual countries from acting and allow banks to juggle their balance sheet to beat the restrictions. "We do not consider it appropriate to constrain the ability of member states to go further in implementing prudential standards where it is appropriate," the letter said.

It also warned that unintended consequences could arise, such as banks reducing capital at the start of 2013 and rebuilding it over several years to reach the required amount.