The European Central Bank (ECB) outlined plans to simplify bank regulation and capital rules on Thursday, but is sticking to its pledge not to ease overall capital reserve requirements.
The authority said the capital proposals are focused on having fewer – rather than lower – types of capital buffers lenders must hold to protect their balance sheets against shock losses.
Irish woman Sharon Donnery, a member of the ECB banking supervisory board, was a key member of the taskforce set up earlier this year to ease the burden of banking supervision following more than a decade of tighter rules in the wake of the global financial crisis, which resulted in taxpayer-funded bailouts of European banks.
In a statement, the ECB said its aim was to “simplify the framework” without endangering the “resilience of the European banking system”.
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The ECB’s top decision-making body, its governing council, backed the recommendations. They will not be sent to the European Commission for consideration as part of a wider push by Brussels to streamline policies and laws to make the European Union more competitive.
The taskforce concluded that the bloc’s current capital rules are overly complex and risk backfiring as investors may not understand them. European banks are at present subject to a number of individual capital buffers, four of which the ECB wants to merge into two.
“The variety of capital elements in place in the EU may decrease transparency and increase uncertainty as market participants face more challenges in assessing the capital framework,” the report said.
It suggested combining several individual capital surcharges that the ECB at present applies to banks based on their individual risk profile.
The report did not explicitly state whether the combined amount of capital that banks would be required to hold would stay the same, but it said lenders should “sustain current levels of resilience” to absorb losses in a crisis.
The ECB also proposed exempting more small lenders from the international Basel standards, which are designed for large, risky lenders with cross-border business.
At present, all banks with more than €5 billion in assets need to meet those rules, which the taskforce said created “undue complexity” and costs for lenders that were too small to have repercussions on financial stability.
The ECB suggested raising the threshold and adding more exemptions for smaller banks.
Still, the three domestic Irish lenders, AIB, Bank of Ireland and PTSB will remain subject to standards set for larger banks.
The European Banking Federation welcomed the ECB’s report but said “concrete and determined steps must now follow to enhance the global competitiveness of the EU’s financial sector”. – Additional reporting: Reuters, Financial Times
