19 December 2019

The EBA calls on banks to consider long-term horizons in their strategies and business activities

The European Banking Authority published its Report on undue short-term pressures from the financial sector on corporations, which presents its analysis on the extent to which short-termism is present in the banking sector.

The EBA assessed the potential presence and drivers of short-termism, by looking at

• potential short-term pressures exerted by banks on corporate clients, and
• potential short-term pressures banks may be under on their own, by shareholders and capital markets.

Furthermore, the Report assesses whether banking regulations may play a role in exacerbating or in mitigating short-termism.

Overall, based on an analysis of available qualitative and quantitative sources, the EBA identifies some limited concrete evidence of short-termism, without necessarily being in a position to label it systematically as undue, and highlights the need to promote long-term approaches.

On this basis, the EBA provides policy recommendations advocating that policy action should aim at providing relevant information and incentives for the banks to incorporate long-term time horizons in their strategies, governance, business activities and risk management.

The EBA especially recommends to the European Commission and the EU legislators:

• to maintain a robust regulatory prudential framework as a pre-condition for long-term investments, while continuing monitoring potential unintended consequences of financial regulations on the supply of sustainable investment financing ;
• to foster the adoption of longer-term perspectives by institutions through more explicit legal provisions on sustainability in the Capital Requirements Directive (CRD);
• to continue enhancing disclosures of long-term risks and opportunities, by both corporations and banks, by setting principles and requirements that can ensure comparability and reliability of disclosure e.g. through amendments to the Non-Financial Reporting Directive;
• to improve information flows, data access and support the role of the banking sector in raising awareness on sustainability challenges and environmental, social and governance (ESG) risks, for example through the development of platforms or by setting-up a centralised database on environmental data for financial sector.

Full press release on EBA

Full report on EBA

© EBA