Banking Sector Unhappy With EU Updates to Capital Regulations

Europe’s banking regulators have released updates to their capital rules for lenders.

But as the Financial Times (FT) reported Tuesday (June 16), these changes represent a rejection of calls by the banking industry for major changes to the European Union’s capital requirements.

The report by the European Banking Authority (EBA) is designed to clarify what many lenders—per the FT—argue are excessively complicated and duplicative capital requirements.

This comes as the U.S. and U.K. are both relaxing their banking regulations, the FT added, leaving bankers to complain that EU watchdogs are more hesitant to update restrictions placed following the 2008 financial crisis.

“These changes are minor relative to those being implemented in the U.S. and U.K., which truly reduce capital requirements,” Fernando de la Mora, co-head of financial services at consulting firm Alvarez & Marsal, told the FT. “Most of them are intended to simplify or streamline requirements without impacting the level required.”

François-Louis Michaud, new chair of the EBA, told the FT the proposals were not meant to lower capital requirements, but added that simplifying and clarifying them could eventually lead to an easing of restrictions for some banks.

“This is about the design of the capital framework, not about the level,” he said. “The overall resilience of the system won’t be affected by the proposals. Depending on how the supervisors use the new design, it could change the level of requirements.”

Michaud added the EBA’s report opens “a number of avenues that can be explored in future” and that it was “certainly not the end game,” as the European Commission is expected to offer up its own recommendations on bank competitiveness.

In related news, Federal Reserve Gov. Michael S. Barr said in a recent speech that moves by U.S. banking regulators to relax regulation could undermine financial institutions and heighten financial stability risks.

As covered here last week, Barr’s speech at American University in Washington, D.C., pointed to what he described as decreases in capital requirements, lighter-touch bank supervision, a possible push for reduced liquidity requirements and fewer consumer protections.

“Taken together, the regulatory and supervisory changes recently enacted or proposed represent the most significant deregulation of the banking system since the Global Financial Crisis,” Barr said. “They tip the imperative balance that must be maintained between openness and innovation, on the one hand, and safety and soundness, on the other, in a way that will increase the risks of financial instability.”