EU weighing new powers to ease duplicated capital rules for banks
European Commission Considers Streamlining Capital Requirements
LONDON, June 19 (Reuters) - The European Commission is considering giving national banking regulators greater powers to streamline overlapping capital requirements - potentially freeing up funds for lending, according to a report assessing the bloc's competitiveness.
The Commission's draft report proposes an overhaul of rules that require capital and liquidity to be held at the level of individual subsidiaries, instead focusing compliance at the level of the parent in a banking group.
Global Regulatory Context
Bank regulators globally are looking at ways to ease the burden on lenders to support growth, but the U.S. has moved more aggressively than peers, proposing significant rollbacks of capital rules that have put pressure on others to respond.
Impact on Lending and Competitiveness
Regulatory Fragmentation and Lending Constraints
CONSTRAINING LENDING
In the leaked draft document, first reported by the Financial Times, the Commission said regulatory fragmentation was holding back European Union banks and that a package of measures was needed to boost their long-term competitiveness.
The Commission's final report is due next month, with legislative proposals expected to follow next year.
Investment Gap and Economic Growth
Europe's banks say the current framework constrains lending, with the European Banking Federation estimating the bloc faces a widening €1.4 trillion ($1.62 trillion) annual investment gap that risks holding back its economic growth objectives.
Potential Lending Increase
Europe's banking sector could boost lending by more than €2 trillion if regulators were to simplify rules while maintaining financial resilience, the head of Spain's AEB banking association, Alejandra Kindelan, said on Friday.
Group-Level Capital Management
The European Central Bank has previously pushed for regulators to allow banks to manage capital and liquidity at group level, saying that national ring-fencing traps resources in subsidiaries. Industry estimates suggest about €225 billion of capital and €250 billion of liquidity are tied up this way.
Proposed Legal and Structural Changes
New Legal Powers for Supervisors
The EU executive has suggested that such a change could be accompanied by a new legal power enabling supervisors to require a parent to transfer assets to a subsidiary if needed.
Other Proposed Reforms
The draft report also proposes changes to the structure of bank deposit insurance schemes as well as capital requirements for investment firms.
Additional Information
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(Reporting by Phoebe Seers in London, Mateusz Rabiega in Gdansk, Jan Strupczewski in Brussels and Ananya Palyekar in Bengaluru; Editing by Franklin Paul, Himani Sarkar and Helen Popper)
