Regulatory burden: further relief needed for small and medium-sized banks in Europe

ABBL Published 02.05.2019
  • Banking package of prudential rules adopted recently (the CRR2 / CRD5) will bring some relief
  • Nevertheless, discussions have to continue on various issues and laws
  • Nine European banking associations issue joint position paper on the principle proportionality in EU banking regulation and supervision

The volume and the complexity of financial regulation are in particular for small and medium-sized banks, extremely onerous and disproportionately costly. This is the conviction of the European banking associations of Austria, Croatia, Denmark, Germany, Italy, Luxembourg, Poland, Slovakia and Slovenia. More than 80 per cent of small and medium-sized banks in Europe are located in these associations’ home countries. Even though the EU banking package (the CRR2 / CRD5) has introduced some initial measures to relieve the strain on these banks, further action is needed. As the nine European banking associations explain in a joint position paper, this applies, among other things, to the reporting regime and remuneration requirements.

The aim is not to undo sensible regulation, the banking associations stress: the same capital and liquidity requirements should continue to apply for the same risks. But a number of measures neither make good sense given the size of the banks involved, nor do they contribute to financial stability. Costs are clearly out of all proportion to the associated benefits.

As an example, the banking associations cite reporting requirements. These generate a vast number of pages and figures, which cause banks a massive amount of time and effort that is totally disproportionate to the gain in financial stability. The banking associations therefore strongly support the completion of the EBA mandate to, among other things, make recommendations on how to reduce reporting requirements.

A further case in point is the rules on remuneration. Though these are only relevant for a handful of big banks, the complex rules have to be implemented by all financial institutions in equal measure with all the time and effort this entails.

Gilles Pierre, Head of Banking Regulation at the ABBL, adequately summarises the position of the nine banking associations

“A sensible and consistent approach to proportionality is needed to find a balance that makes all banks in Europe part of the same regulatory and supervisory framework. A proportionate approach maintains diversity and ensures a more resilient banking system.”

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