The European Commission is reviewing banking regulations to reduce overlapping capital rules and help banks increase lending while maintaining financial stability.
The EU is thinking about a number of reforms of the banking regulation that can dramatically change the way in which financial institutions operate and use capital and liquidity in the EU. There are plans to give national banking regulators the power to eliminate duplications in the regulation and release billions of euros that would be available for lending.
The reforms will deal mostly with the question of the way in which banks should follow the capital regulation rules. At the moment, the compliance of the banks with the capital requirements is determined in terms of individual subsidiaries; however, the authorities will consider imposing new requirements in terms of parent companies of banking groups.
Under the current framework, the capital and liquidity requirements for European banks prevent them from granting loans to people and businesses. It is estimated that the simplification of the capital requirements for EU banks can help to free up a considerable amount of resources.
However, the European Banking Federation is of the view that there exists an investment gap in Europe that can adversely affect economic growth on the continent. The federation believes that the introduction of new financial regulations in Europe can help increase loaning capacities without undermining the stability of the financial system.
The European Central Bank has in the past been in favor of group treatment of capital and liquidity among banks, saying that the existing regulations can end up locking down financial resources in single market places. There are estimates that show that there are hundreds of billions of euros of capital and liquidity locked up in the existing regulations.
In addition to increased supervisory power, including requiring parent companies to reassign assets among subsidiaries where necessary, the proposed draft by the European Commission may consider changes in deposit insurance arrangements and capital requirements for investment firms. Business Honor observes that streamlined banking regulations could strengthen Europe’s financial sector by improving lending capacity, supporting businesses, and enhancing global competitiveness.
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