05 October 2015

Financial Times: Banks chiefs claim tougher ECB rules give advantage to US rivals

In a key early challenge to the policies of the ECB’s new bank supervision arm, the bank chiefs have written to the regulator arguing that planned additional capital charges go too far and would choke off lending to businesses, running counter to the EU’s economic goals.

According to the letter, the euro area’s largest banks would be forced to hold two percentage points of capital more than US rivals — equivalent to billions of euros of additional equity. The continental banks say this would also place them at a disadvantage to British banks.

“This gap between eurozone banks and US, or UK, banks would not only have structural and long-term consequences, which would be preoccupying enough: it may also jeopardise in the directly coming months the competitiveness of the eurozone banks in securing capital and funding,’’ the chief executives say.

Their push comes as the ECB is finalising additional capital requirements for the 123 banks it directly oversees. These standards, which come on top of minimum EU and international rules, stipulate how far banks must fund themselves with loss-absorbing equity, a measure of financial strength.

Mario Draghi, the ECB’s president, last month told EU lawmakers that the additional requirements were not intended to tip the competitive balance, saying: “All efforts have been made to try to keep the supervisory action on the same ground as has been done in other jurisdictions, namely the UK.”

He also argued that “most banks already have capital levels which are way above what is being required,” and so the requirements should have little impact on lending.

The bank chiefs call on the ECB and national governments “to conduct a full impact analysis study to evaluate the macroeconomic and microeconomic consequences of adding up these too high capital requirements compared to the US and the UK and adopt a prudent position in the immediate future”.

Full article in Financial Times (subscription required)

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