A simplified regulatory framework and progress on banking union and capital markets union would allow European banks to increase their capacity to lend to the economy by “almost a third”, i.e. an additional €4 to 4.5 trillion, according to the European Banking Federation, based on a study commissioned from Oliver Wyman and published on Friday 27 January.
The study compares the cost to banks of regulatory compliance in the US and the EU. It notes that the European approach to determining capital requirements, by being “more complex” and giving “wider discretion” to supervisors, forces European banks to hold more capital than their US competitors (10.6% CET1 capital in the EU versus 9.9% in the US). And future requirements related to the implementation of the ‘Basel III’ agreement and climate-related capital surcharges would “penalise” European banks even more, the authors of the study add.
They note that “structural barriers”, such as the prohibition of intra-group liquidity transfers, limit the consolidation of the sector in the euro area. As a result, unlike European banks, US banks have returned to pre-crisis profitability.
The firm Oliver Wyman recommends stimulating the European securitisation market, which is “17 times smaller” than the US market. “Well-designed securitisation will provide an effective tool for banks to free up their balance sheets and release capital, enabling the risk to be transferred to investors”, it says.
Combined with the opacity of the ownership of securitised products, this financial technique contributed to the global spread of the US subprime mortgage crisis.
On Tuesday, during the vote on the finalisation of the introduction of the ‘Basel III’ agreement in the EU (see EUROPE 13106/19), the competent committee of the European Parliament approved an amendment by Gilles Boyer (Renew Europe, French) reducing the capital requirements for all types of securitisation.
According to the study, supervisors should also put more emphasis on streamlining and improving the efficiency of key processes (such as SREP supervisory review or stress tests) and be more vigilant on breaches of the level playing field.
See the study commissioned by the EBF: https://aeur.eu/f/545 (Original version in French by Mathieu Bion)