BRUSSELS — The European Union has invited U.S. Commerce Secretary Howard Lutnick to Brussels on Nov. 24 for talks with the bloc’s trade ministers, a Danish official familiar with the situation told POLITICO. The Danish presidency of the Council of the EU, as well as the European Commission, have invited the commerce secretary to attend a lunch with ministers dedicated to trade relations between the United States and the EU. The invitation comes as rifts with China over its latest export controls on rare earths redefine relations between Washington, Beijing and Brussels. Lutnick hasn’t yet formally confirmed his attendance at the ministerial meeting, the official added. The invitation, which has been in the works for months, comes as Brussels and Washington are still going through the implementation of commitments struck in Scotland in July between U.S. President Donald Trump and the European Commission President Ursula von der Leyen. European Commission spokesperson Olof Gill confirmed the invitation had been extended to Lutnick. Brussels is still pressing Washington for tariff exemptions on sensitive sectors such as spirits and chemicals, and has raised concerns about the U.S. expanding its list of derivative steel products subject to a 50 percent tariff. EU countries will be informed of the invitation on Friday, with ambassadors set to discuss it on Nov. 5. It builds upon recent contact between EU trade chief Maroš Šefčovič and Danish Foreign Minister Lars Løkke Rasmussen, whose country is currently chairing legislative work for the Council, the bloc’s intergovernmental arm. G7 allies are meanwhile seeking to coordinate their responses to China’s grip on the supply of the minerals that are crucial for tech such as wind turbines, electric vehicles and drones. The European Commission on Friday is hosting a delegation of Chinese officials to discuss the latest export controls. The U.S. Department of Commerce was contacted for comment. Daniel Desrochers contributed to this report.

Germany’s two banking supervisory agencies have drafted a plan to ease the burden of regulation on Europe’s smaller banks and are now seeing if it will fly. An informal discussion paper drafted by the Deutsche Bundesbank and Bafin — which share responsibility for supervising German banks — proposes freeing banks across the EU of the need to report capital ratios based on complex calculations of the riskiness of their assets, as well as liberating them from various other obligations. The proposals are the first concrete result of a drive to simplify regulation that began earlier this year and are the clearest sign yet that the EU is — belatedly — ready to undo some of the stifling financial regulation it introduced over a decade ago. Regulation is currently based on the global Basel III accords that were agreed by regulators in 2010, two years after reckless lending by U.S. and European banks caused the biggest financial crisis in nearly 80 years and a wrenching recession across most of the world. Basel III drastically increased the amount of capital and liquidity that banks have to hold to protect themselves against a possible repeat. But the accords were aimed primarily at big international institutions whose operations were capable of destabilizing the global financial system; as the impact of the 2008-2009 disaster has faded, regulators have grudgingly come to accept that their response went too far. The U.S., Switzerland and the U.K. have already implemented less intrusive regimes for smaller banks with simpler business models. “With the proposal for an EU small banks regime, we have provided important impetus to the discussions on simplifying the regulatory framework,” Michael Theurer, the Bundesbank’s head of banking supervision, said in emailed comments, stressing that the proposal “does not represent a departure from the Basel framework.” The framework would be open to banks with less than €10 billion in assets and with a mainly domestic focus (at least 75 per cent of their business should be in the European Economic Area). Banks using it would not be allowed to hold any cryptocurrency assets such as Bitcoin, and would be allowed to hold only minimal amounts of derivatives or assets for trading purposes. They would also have to prove that their vulnerability to changes in interest rates is acceptably low. ‘PARADIGM SHIFT’ Under the Capital Requirements Regulation, which applies Basel III in the EU, banks are generally required to report two capital ratios — one adjusted for risk, and one unadjusted. The latter, known as the leverage ratio, was originally intended as a backstop to prevent larger banks from gaming the system by understating the risks on their books under internal models allowed by the accords The German proposals suggest that smaller banks would merely have to report a leverage ratio, albeit a “significantly higher” one than the present 3 percent. By comparison, U.S. community banks must keep their leverage ratios above 9 percent, which means they must hold at least $9 of capital for every $100 in assets. Theurer said the Bundesbank had deliberately refrained from suggesting a specific ratio at this time. This idea “is more than a technical detail,” Daniel Quinten, a member of the board at Germany’s Federal Association of Cooperative Banks, said in a post on social media. “It would be a paradigm shift — and a chance for more proportionality, more efficiency and less bureaucracy in regulation.” The proposals — and the feedback they get — are to be incorporated in a report that a high-level European Central Bank task force will recommend to the European Commission at the end of the year. | Florian Wiegand/EPA The proposals also simplify demands on liquidity coverage. They would exempt banks from the Basel III Net Stable Funding Ratio — a complex formula for guaranteeing liquidity over a one-year timeframe — and would replace it with a new requirement that would limit their lending to only 90 percent of their deposit base. Banks would also have to keep at least 10 percent of their assets in highly liquid form, such as cash, central bank reserves or short-term government debt. This, the discussion paper said, “would achieve similar potential outcomes with dramatically reduced complexity.” The proposals — and the feedback they get — are to be incorporated in a report that a high-level European Central Bank task force will recommend to the European Commission at the end of the year. Additional reporting by Carlo Boffa.

ROME — Italy’s UniCredit said on Sunday it has built a stake of 4.1 percent in insurance and asset management giant Generali Group, adding another twist to a highly politicized battle over control of the country’s financial sector. The Milan-based bank said it also holds another 0.6 percent of Generali on behalf of clients and their related hedging activities. It said its holding is “a pure financial investment” that would not affect its balance sheet strength, and asserted that it has “no strategic interest in Generali.” However, its move adds an extra layer of complexity to an already confusing power struggle over Italy’s biggest banks and asset managers, in which the government of Giorgia Meloni appears to be pushing the creation of a “third pole” to rival UniCredit and Intesa Sanpaolo with the help of some sympathetic local billionaires. The government is keen to ensure that Generali, which last month agreed to combine its asset management business with that of France-based Natixis, keeps its appetite for Italian sovereign debt at a time when Rome needs to borrow nearly €1 billion a day. The Trieste-based conglomerate is the government’s largest private-sector creditor. Rome had initially pushed for an alliance between Banco BPM, a Milan-based lender, and Banca Monte dei Paschi di Siena (MPS), which the government is still in the process of privatizing after years of restructuring. That intention was frustrated last year when UniCredit made a formal offer for all of BPM. UniCredit said on Sunday that it remains committed to that deal, and to developing its relationship with Germany’s Commerzbank. Rome is now throwing its support behind a bid by MPS for Mediobanca, a Milan-based merchant bank that has historically catered to some of the country’s biggest business empires. Mediobanca is also Generali’s biggest shareholder, with a 13.1 percent stake. Italian media have reported that the Del Vecchio and Caltagirone families, which hold just under 10 percent and 7 percent of Generali, respectively, want to increase their influence at the Trieste-based insurer. A person familiar with the matter said that while the purchase of a stake by UniCredit was not an explicit attempt to exert leverage in the billionaires’ tussle over Generali, it will have an “interesting” effect at a coming board meeting. The same person noted that UniCredit had started snapping up Generali shares before MPS’s move on Mediobanca. People familiar with the matter told POLITICO that UniCredit had built its stake via derivatives, gaining economic exposure to Generali without crossing a threshold for mandatory disclosure. UniCredit declined to comment to POLITICO on that. Geoffrey Smith contributed reporting.

ROME — Italy’s UniCredit has bought a stake in insurance giant Generali Group, according to two people familiar with the matter, adding another twist to a byzantine banking battle brewing in Italy’s north. Generali is in the crosshairs of several competing groups, including the Rome-allied billionaire Del Vecchio and Caltagirone families, as well as Milan-based investment bank Mediobanca. UniCredit is separately trying to take over Milan lender Banco BPM, in which both groups also own a stake. One of the people said that while the purchase of a stake by UniCredit was not an outright attempt to exert leverage over the billionaires’ bid for Generali, it will have an “interesting” effect at a coming board meeting. UniCredit’s purchase, which remains below 4 percent, was made via derivatives that allow the bank to be economically exposed to the asset without hitting the 10 percent threshold for mandatory disclosure, the two people said. The Milan bank began buying shares before its Tuscan rival, Monte dei Paschi di Siena, made a surprise bid for Mediobanca last month, one of the people added. Italian newspaper Sole24Ore reported earlier on UniCredit’s move. UniCredit declined to comment when contacted by POLITICO.

Just when Germany thought it could relax, Andrea Orcel’s UniCredit has come back for another bite at Commerzbank, sowing fresh panic both at the bank and among its defenders in Berlin. The Italian-based lender said Wednesday morning it had indirectly increased its stake in Germany’s second-largest bank through derivatives to around 28 percent, reviving the prospect of an all-out takeover. Already angered by the Italians’ initial advance in September, the German government lashed out again at what it sees as a creeping, hostile takeover of an essential source of credit to German companies. “We reject UniCredit’s unsolicited and unfriendly approach,” a government spokesman told a press conference, “all the more so because Commerzbank is a systemically-relevant bank. Unfriendly attacks and hostile takeover are not appropriate in the banking sector.” There was also evidence that Berlin is preparing to back its words up with action, using national security clauses in domestic legislation, as well as broader antitrust law, to thwart a full takeover. A briefing note for the government, shared on Wednesday with POLITICO, highlighted two main ways in which such defenses could be activated. In the first instance, the note advanced the argument that Commerzbank represents a vital national security interest as a supplier of credit to the defense industry, a sector that the German government is suddenly having to prioritize again after 30 years of neglect. As a second line of argument, it said UniCredit could be classified as a non-European entity due to its shareholder structure, something that would expose it to stricter antitrust scrutiny. While registered and listed in Italy, over half of UniCredit’s shares are held by entities based in the U.S. or U.K. More outlandishly, the note ventured that a takeover could be stopped by arguing that UniCredit had benefited for years from effective subsidies through a low tax rate on its activities in Russia. That could allow the European Commission to challenge it under the so-called Foreign Subsidies Regulation.

LONDON — California has a message for Britain: Good luck trying to regulate AI. The Golden State’s governor Gavin Newsom on Sunday vetoed a bill which sought to impose safety vetting requirements on developers of powerful artificial intelligence models — siding with much of Silicon Valley and high profile politicians like Nancy Pelosi in the process. The demise of the bill will come as a warning for Britain’s Labour government, which is drafting a proposal similarly aimed at placing restraints on the most powerful forms of the technology known as frontier AI. While the Californian proposal — known as SB 1047 — garnered high-profile support from Hollywood A-listers and scores of employees at AI developers including OpenAI, Google DeepMind and Anthropic, it was undone by an aggressive campaign spearheaded by deep-pocketed tech firms and venture capitalists. London’s efforts, which ministers have repeatedly stressed will be both light-weight and narrowly targeted, could spark similar pushback. “We heard a similar refrain from tech companies around SB 1047 that we did around the EU AI act: that the regulation was too burdensome and would harm innovation. But this misses the point,” said Andrew Strait of the Ada Lovelace Institute, a U.K. nonprofit. Widespread adoption of AI technologies, which the Labour government is banking on as part of its bid to boost the U.K.’s lagging economy, “is only achievable with regulation that ensures people and organizations are confident the technology has been proven to be effective and safe,” Strait said. “Guardrails will help them move faster.” BATTLE ON THE WEST COAST The California experience shows London the kind of lobbying battle it could be up against, and highlights how carefully Whitehall officials will need to tread when drafting their own legislation, which the British government hopes to consult on before Christmas. Critics of the California bill argued that AI regulation should be addressed at the federal level, while opponents such as Google and OpenAI argued its requirements would unduly burden developers. But the campaign against SB 1047 also featured claims slammed by some — including a leading think tank and the author of the bill itself — as misleading. These included assertions that the new rulebook would require developers to guarantee their models couldn’t cause harm and that it would decimate the open source AI community by requiring developers to install a “kill switch” on their models. Fei-Fei Li’s intervention was cited in subsequent opposition to the bill, including from longstanding California Congresswoman Nancy Pelosi and OpenAI. | Craig Barritt/Getty Images for Clinton Global Initiative In truth, the bill only ever called for developers to have “reasonable assurance” on whether their AI would cause catastrophic harm, rather than a full-blown guarantee, while the bill’s architect, State Senator Scott Wiener, rubbished claims that developers would need to build in the ability to shutdown models via a so-called kill switch. “We believe the bill has never required the original developer to retain shutdown capabilities over derivative models no longer in their control,” he argued in a letter addressing what he called “inflammatory statements” from Andreessen Horowitz and Y Combinator, VC funds that led much of the campaign against the bill. Wiener has since described some of the allegations levelled against his bill as “misinformation.” But that didn’t stop a lot of these claims becoming repeated as gospel, including in an influential op-ed by Fei-Fei Li, a computer scientist feted as the “Godmother of AI.” Li’s intervention was cited in subsequent opposition to the bill, including from longstanding California Congresswoman Nancy Pelosi and OpenAI, showing the snowball effect of these kinds of lobbying campaigns. A spokesperson for Andreessen Horowitz said they “respectfully disagreed” with accusations they promoted misleading claims, pointing POLITICO to a 14-page response they issued to Wiener’s comments. A Y Combinator spokesperson said: “The semantic debates alone demonstrate the challenges with bills like SB 1047 being vague and open-ended. We welcome the opportunity to support policymakers in creating clear and reasonable rules that support the startup economy.” A CALIFORNIAN EDUCATION Britain may have some advantages over California, though — the first being that the big cheeses in tech may just care less about the U.K. than their home turf on the U.S. West Coast. Advocates of SB 1047 argue that the bill fell because of the quirks of California politics, where a bill that made it through the legislature was felled by an ambitious governor keen not to get on the wrong side of the state’s powerful tech barons. The second is that in the U.K. AI Safety Institute, Britain has unrivalled access to state capacity in AI safety know-how. Meta executive and former U.K. Deputy Prime Minister Nick Clegg recently said Britain had “wasted a huge amount of time.” | Nhac Nguyen/AFP via Getty Images But California’s experience had other lessons for Britain, too. In vetoing the bill, Newsom took aim at its narrow focus on frontier systems, arguing that it ignored the context in which they’re deployed — a criticism that has been lobbed at the U.K.’s approach, too. Britain’s ruling Labour Party has repeatedly said its bill will place binding safety requirements on only those creating the most powerful models, rather than regulating the way the tech is used. “If you have a very small AI that’s used only by a number of people, but that AI decides whether somebody will get a loan or not, well, that should absolutely be regulated, right? Because it has a real impact on people’s lives,” said Stefanie Valdés-Scott, head of policy and government relations in Europe for Adobe. Valdés-Scott argued that, like the EU’s AI Act, the U.K. should target AI models’ applications in specific areas rather than the capability of top performing machines. Meta executive and former U.K. Deputy Prime Minister Nick Clegg recently said Britain had “wasted a huge amount of time” due to the energy spent by the last government on the risks posed by AI in areas like cybersecurity and bioterrorism. But even as the new Labour government has shifted its rhetoric towards a more positive vision of adopting AI to grow the economy and improve public services, it has been urged not to throw out the baby by the water when delivering on a promise to impose binding rules on the world’s most valuable tech firms. Britain’s ruling Labour Party has repeatedly said its bill will place binding safety requirements on only those creating the most powerful models, rather than regulating the way the tech is used. | Ian Forsyth/Getty Images Julian David, CEO of TechUK, the U.K.’s leading industry body, previously said the government would have to “get the right balance between new laws” and promoting economic growth. Jessica Lennard, chief strategy officer at the U.K.’s competition and consumer protection watchdog, meanwhile warned that a focus on AI safety is seemingly coming at the expense of other AI governance issues like liability and accountability. “That to me, leaves a real serious lacuna in some spaces,” Lennard said. “AI liability and accountability particularly tends not to be covered explicitly in that AI safety conversation.”