The European Commission has today unveiled a slew of potential reforms designed to keep the banking sector propped up in the event of an economic downturn and to bring the EU industry more in line with the rest of the world.
Included among the proposals are tweaks to capital requirements to make them more sensitive to risk and a requirement for too-big-to-fail banks, or Global Systemically Important Institutions (G-SIIs), to hold a minimum level of capital and bail-in resources, which are a special kind of debt that banks can call in for equity if they run into trouble.
The Commission also proposed measures designed to help banks lend to small businesses and to loosen some of the administrative burdens on smaller banks. However, it also pushed for non-EU G-SII banking groups with two or more institutions established in the EU to set up an intermediate EU parent company.
The proposals will be put to the European Parliament and Council for consideration.
"Europe needs a strong and diverse banking sector to finance the economy," said Valdis Dombrovskis, the EU commissioner on financial services. "We need bank lending for companies to invest, remain competitive and sell into bigger markets and for households to plan ahead.
"Today, we have put forward new risk reduction proposals that build on the agreed global standards while taking into account the specificities of the European banking sector."
The reforms proposed today are designed to bring the EU's rules more in line with requirements already proposed by the Basel Committee, but makes a few departures while doing so.
However, David Strachan, partner in Deloitte’s EMEA Centre for Regulatory Strategy, commented:
Today's proposals challenge the increasingly fragile state of international regulatory coordination.
The proposed intermediate parent company requirement for non-EU banks creates new uncertainties, while the EU's preparedness to depart from some elements of agreed Basel texts could undermine progress towards global capital standards.