The Council of the European Union agreed today on a position regarding the EU banking package. The package represents a profound overhaul of banking supervision requirements, the focus of which is the final implementation of Basel III; it will place a significant burden on the European banking industry. The new regulations will significantly increase capital requirements for banks, and implementing these regulations is associated with high administrative costs.
One positive is that the council supports the regulations proposed by the European Commission, which are at least designed to ameliorate the negative effects that the banking package will have on financing for consumers and businesses. This takes into account important European specificities, such as bank financing for businesses with no external rating, or the low risk of residential property loans. The fact that the Council has, in addition, objected to the tighter regulations proposed for trade financing or financing for customers in the public sector is, from the point of view of the German banks, the right decision. It means that issues that are particularly important from the German point of view have been taken into account.
It is unfortunate, however, that the proportionality of the regulatory framework for small and medium-sized institutions has, once again, not been adequately accounted for. The manner in which strategic, long-term shareholdings are dealt with, too, must be viewed in a critical light and should surely be designed in a manner that is more in line with the risks.
The Council’s decision not to argue for additional capital requirements for ESG risks in Pillar 1 was the right one. There are no provisions for these in either the international framework or the Commission proposal. The Council rightly continues to trust in a regulatory framework that is solely risk-oriented and data-based, finding itself in this case in broad agreement with the large majority of supervisory bodies. The fact that the Council has taken such a strong position on this subject thus sends an important signal in regard to the upcoming trilogue negotiations.
Regardless of how the legislative process continues, once it is finalised the banks will need a reasonable amount of time for implementation.