On Friday 17 July, the European Commission highlighted a series of legislative measures that it intends to present at the beginning of 2027 with the aim of strengthening the competitiveness of the European banking sector.
“Currently, Europe’s banks are resilient, well capitalised, well supervised and profitable”, said the European Commissioner for Financial Services, Maria Luís Albuquerque. “But being resilient is a necessary condition, not a sufficient one to ensure competitiveness” in the sector, finance the economy and face international competition, she noted.
The communication adopted by the college of Commissioners contains few changes compared with a provisional version (see EUROPE 13894/18). It sets out three main challenges mentioned by Mrs Albuquerque to the press: - “Banking is still too fragmented across national lines”; - “The implementation of international standards does not always sufficiently reflect EU specificities”; - “The EU rulebook is too complex”.
In order to facilitate the activities of cross-border groups within the banking single market, the Commission intends to propose measures allowing large banks to “improve efficiency in the allocation of their capital and liquidity”. According to the Commission, group-wide supervisors must have the necessary powers to ensure that regulatory requirements are complied with at the level of the parent entity and to require it to allocate “sufficient resources to its subsidiaries in a timely and enforceable manner, both in normal circumstances and in crises situations”, supported by appropriate safeguards for the protection of creditors and depositors, the EU institution stresses, in order to reassure countries hosting subsidiaries of major banking groups on their territory.
Mrs Albuquerque, from whom Agence Europe was seeking clarification, did not go into detail, as her departments are working on concrete provisions. She insisted on the importance of building “trust” between Member States, arguing that the application of prudential rules by host-country supervisors currently traps “€230 billion” in liquidity, according to the ECB.
Withdrawal of the ‘EDIS’ proposal. The Commissioner also advocated “a new approach” to complete the banking union while retaining the same objective: ensuring that liquidity is available in the event of a bank failure.
The institution justified the withdrawal of the proposal to set up a European ‘EDIS’ deposit insurance scheme (see EUROPE 11437/1), noting that the context has changed considerably since 2015: the Single Resolution Fund and the national deposit guarantee schemes (DGSs) are “fully funded” and the share of non-performing bank loans inherited from the past is residual (“legacy issues”).
The Commission is therefore considering simplifying the structure of the regulatory framework in order to “better align the responsibilities for and financing of crisis management and deposit insurance measures, within the existing safety nets of the Banking Union, both at central and national levels”. The proposal will also address the persistent vulnerabilities of DGSs to liquidity shortfalls and ensure that individuals’ deposits continue to be guaranteed up to €100,000.
International competition. While the EU, unlike other jurisdictions such as the United States, applies the international standards of the ‘Basel Committee’ to its entire banking sector, the Commission believes that this approach admittedly contributes to the solidity of the system, but also creates complexity and a “disproportionate” burden, especially for smaller banking institutions that are less exposed to financial market risks.
Echoing Spanish, French and Italian proposals (see EUROPE 13882/23), the Commission will propose reassessing the minimum own-funds threshold (‘output floor’) required for banks using an internal model to calculate their capital requirements, and changing the prudential treatment of exposures to mortgage credit and loans to unlisted companies.
Simplification. Lastly, regarding simplification of the regulatory framework, the Commission will propose amending prudential requirements in order to streamline the macroprudential capital ‘buffers’ imposed on large banks, by reducing the number of buffers and improving their calibration.
In addition, as expected, the EU institution intends to make the rules more proportionate for banks whose business model is less risky. For these banks, reporting requirements should be eased. According to the European Banking Authority, compliance with regulatory requirements costs “more than €24 billion, of which more than €11 billion is devoted to reporting”, Mrs Albuquerque pointed out.
See the Commission communication: https://aeur.eu/f/my3 ; as well as the staff working document: https://aeur.eu/f/my4 (Original version in French by Mathieu Bion)