The EU only scraped through a test of whether it complies with global banking rules aimed at making the financial system safer and avoiding another global markets meltdown.

The US fared better in complying with bank capital rules know as Basel III which constitute the world’s core regulatory response to the 2007-09 financial crisis that saw under-capitalised lenders being rescued by taxpayers.

The global regulators who wrote the rules marked Europe down over its lighter capital treatment on banks holding government debt, a sensitive issue in a region where several countries had to be bailed out.

The Basel Committee said its review of how the EU and US, which account for most global banking assets, apply the rules found several instances where both fell short.

The committee, made up of supervisors and central bankers from nearly 30 countries, graded the 28-country bloc as “materially non-compliant”, the lowest grade above a fail. The US was deemed to be “largely compliant”.

Beyond yesterday’s “naming and shaming”, Basel has no powers to enforce its rules or sanction ule busters.

Europe was braced for criticism from the Basel Committee. But lawmakers from the European Parliament, which approved EU rules comprising an amended version of Basel III, said the changes made in Europe were aimed at helping banks to finance the economy.

“The opinion of a body that is working without legitimacy and without any transparency cannot modify the decisions taken democratically by the European institutions,” a cross-party group of lawmakers said in a joint statement.

Basel said eight of the 14 components of Basel III it studied in Europe met all minimum provisions and were compliant, while a further four elements were largely compliant.

One element regarding bank exposures to government debt, and to small and large companies, was “materially non-compliant”.

This element is crucial in determining how much capital a bank should be holding to cover potential losses from defaulting debt.

The committee said it recognised that the EU would limit over time the non-compliant treatment of bank exposures to sovereign debt.

An EU exemption on capital charges for certain exposures to financial derivatives was also “non-compliant”.

The overall US grade was better because the deviations have a limited impact on financial stability and do not give American banks any big competitive advantage, Basel said.