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New EU Bank Capital Rules Disappoint Lenders
The EBA's clarification of capital rules rejects industry calls for major reform, leaving European banks at a disadvantage as US and UK ease restrictions. The European Commission's next move will be key.
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European banking regulators released updates to capital rules Tuesday. The industry response was not gratitude.
The European Banking Authority report clarifies requirements that lenders say are needlessly complex and duplicative, the Financial Times reported. The changes reject the banking sector's push for a major overhaul of the EU's capital framework.
Fernando de la Mora, co-head of financial services at consulting firm Alvarez & Marsal, told the FT the adjustments are minor compared with what the U.S. and U.K. are doing. "Most of them are intended to simplify or streamline requirements without impacting the level required," he said.
The timing adds to the frustration. Both the U.S. and the U.K. are easing their banking rules. EU watchdogs, by contrast, are holding the line on post-2008 restrictions.
François-Louis Michaud, the EBA's new chair, told the FT the proposals are not meant to lower capital levels. He said simplifying the design could eventually ease restrictions for some banks. "This is about the design of the capital framework, not about the level," Michaud said. "The overall resilience of the system won't be affected by the proposals."
Michaud added the report opens avenues for future work and is "certainly not the end game." The European Commission is expected to release its own recommendations on bank competitiveness.
Across the Atlantic, the tone is different. Federal Reserve Gov. Michael S. Barr warned in a recent speech that U.S. moves to relax regulation could increase financial stability risks. He described the changes as "the most significant deregulation of the banking system since the Global Financial Crisis," pointing to lower capital requirements, lighter supervision, and fewer consumer protections.
"They tip the imperative balance that must be maintained between openness and innovation, on the one hand, and safety and soundness, on the other, in a way that will increase the risks of financial instability," Barr said at American University.
The divergence between the EU and the U.S. leaves European banks arguing they face a competitive disadvantage. The EBA's report does not close that gap. The European Commission's upcoming recommendations will be the next test of whether the bloc's rules shift. For now, the message from Brussels is clear: capital levels stay high, even if the rulebook gets a trim.