Both Reuters and Bloomberg have more detail on Tuesday’s Slog exclusive about eurobanks trying to twist arms on Basel III. Not surprisingly, the issue seems to be one of how to define capital. (For a stress-test, not having enough capitalisation is something of an issue).

Felix Salmon (an excellent blogger on the Reuters site) seems to have dug out what the specific problem is, and what the compromise will be – viz, cunningly, banks have until now been able to treat minority stakes in other banks as assets….when of course, in the current environment, they are far more likely to represent liabilities. ‘The proposed compromise’, Salmon writes, ‘seems to be that banks can count their foreign stakes as capital — but only against the risks at the foreign bank’.

It works for me. More fascinating still, however, is confirmation from Felix of the view expressed yesterday to The Slog by a Swiss contact: that the eurobanks are filibustering: playing for time in the desperate hope that their cap and balance numbers will look better by the time the tests get going, at the same time watering down the regulations along the way. Astonishingly, Salmon confirms that these new rules may not be finalised and published until mid 2011….far too slow for the markets, who are expecting results in just eight days time. This level of stonewalling is, I must confess, a new one on me.

If you don’t follow Felix Salmon’s regular column, I can recommend it. It’s largely devoid of moneyspeak and always has a scoop and/or an insight in it. The bottom line of this particular news story, however, is that banks engaging in this degree of defensive arm-twisting and dilution will only reinforce the markets’ underlying view that the tests will be a sort of fudged whitewash. A bit like the credit rating of the EU Sovereign bailout fund, really.