The European Union is preparing to grant greater flexibility to banks regarding the transfer of funds between member states.
At the same time, it is considering easing certain capital requirements that hinder the granting of mortgage loans and the financing of businesses without a credit rating.
This is evident from a draft report by the European Commission on the competitiveness of the banking sector, which was obtained by the Financial Times prior to its scheduled publication next month.
The document outlines a broad reform plan for the European banking system, including the restructuring of deposit guarantee schemes and a review of capital requirements for investment firms.
Meanwhile, Brussels is considering the possibility of ceasing to fully apply the international banking rules of Basel III to smaller banks or to create a simplified regulatory framework for them.
According to the draft, “certain elements of the existing framework are overly demanding for small and less complex banks,” which reinforces the need for greater proportionality in the rules.
The initiative is part of an effort to strengthen the competitiveness of European banks vis-à-vis their American competitors. However, it does not go as far as the across-the-board reduction in capital requirements that the banking sector has been calling for for years.
Banks have long argued that overlapping requirements from supervisory authorities, resolution mechanisms, and national regulatory authorities limit their ability to grant new loans and support the economy.
The European Commission identifies three key obstacles that limit the growth of the European banking sector: the fragmentation of the single banking market, the need to adapt international rules to the specific characteristics of the EU, and an overly complex and burdensome regulatory framework.
Central to the report is the proposal to grant supervisory authorities more powers so that capital and liquidity requirements can be assessed at the parent company level rather than separately for each subsidiary in different member states.
The proposed change will allow large banking groups to allocate their resources more effectively within the European Union, addressing one of the industry’s key complaints. Banks argue that national requirements force them to maintain excess capital and liquidity reserves in local subsidiaries, reducing efficiency and discouraging cross-border expansion.
In addition, Brussels is considering simplifying capital adequacy rules, with plans to “reduce the number of capital buffers and improve their design and calibration.” At the same time, an assessment will be conducted to determine whether certain provisions of Basel III make lending to unrated companies and to households seeking mortgages.
