In a first discussion in the European Parliament’s Committee on Economic and Monetary Affairs on Wednesday 20 April, MEPs generally said the legislative package to finalise the introduction in the European Union of the ‘Basel III’ agreement on prudential requirements for banks was a good starting point. The European Commission had submitted this legislative package in autumn 2021 (see EUROPE 12821/2).
The proposal on the table is “welcome”: it seeks to address the pro-cyclical effect of the internal models used by some banks in calculating their capital requirements by creating an ‘output floor’ for these banks, while providing for two “transitional regimes” - for bank exposures to unlisted companies and low-risk mortgage credits - that meet “obvious” European specificities, said Jónas Fernández (S&D, Spain), the European Parliament’s rapporteur on this subject.
He stressed the importance of having a European regulation that remains consistent with international standards and incorporates the minimum ‘output floor’. However, he added, “we should not establish (these transitional regimes) permanently”.
On behalf of the EPP group, Austrian MEP Othmar Karas welcomed a “good proposal” from the Commission. Among the principles highlighted was the importance of preserving the international competitiveness of the European banking sector. Like him, other MEPs, such as Italians Marco Zanni (ID) and Raffaele Fitto (ECR), argued for proportionality in prudential rules for smaller, lower risk banking entities so that they continue to finance the economy in a difficult economic environment.
“The key word is balance”, said Gilles Boyer (Renew Europe, France), recalling that the European Council had asked that the legislative package not lead to a substantial increase in bank capital.
The Commission estimates that the proposals, if adopted unchanged, would result in a modest increase in capital requirements (between 3 and 5% in the early years of the transitional phase and between 8 and 9% in 2030).
According to Boyer, it is “essential” to introduce an ‘anti-dumping’ clause that would penalise banks from third-country jurisdictions that do not fully comply with the ‘Basel III’ agreement, as the EU is ahead of its international partners in its legislative work. He also said the hypothesis of making transitional regimes permanent should be explored.
For Ville Niinistö (Greens/EFA, Finland), the Commission’s approach to the ‘output floor’ is “the only one in line with the spirit and the letter of the Basel III agreement”. However, he pointed to a “slippage” in the application of this principle for residential loans.
Among other provisions of the legislative package that are likely to be amended or even strengthened, Mr Fernández mentioned the reporting and consideration of environmental, social and governance (ESG) risks by European banks as well as the supervision of branches of third-country banks operating in the EU.
However, according to Linea Søgaard-Lidell (Renew Europe, Denmark), asking banks to report on their exposure to environmental risks is “not a good thing”, as bankers are not experts in this area. (Original version in French by Mathieu Bion)