- Today, the European Commission has published a legislative proposal for the implementation of the Basel III regulatory framework for EU banks as revised by the Basel Committee. “We welcome the clear intention of the European Commission to take account of the particular circumstances of the European banking market,” says Gerhard Hofmann, Member of the Board of Managing Directors of the National Association of German Cooperative Banks (BVR). “However, I would like to have seen bolder ideas regarding exemptions for small banks in the EU – similar to those that countries such as Switzerland, the US, and the UK have already implemented. The European Commission has failed to seize an opportunity to propose greater proportionality.”
The BVR agrees with the decision to postpone the date on which the new rules come into force by two years to 2025. “This will give banks and their data centers the time they need to implement the new regulatory requirements, provided the EU completes the legislative process within the envisaged time frame,” says Hofmann with regard to the proposal’s conscious deviation from the Basel Committee’s specifications. The planned retention of established EU rules such as the low capital requirement for funding for small and medium-sized enterprises and the current risk weighting for strategic equity investments within banking groups and networks was also welcomed by the BVR. Any changes to the contrary would have an enormous adverse impact not only on banks but also on the wider economy.
However, the requirement for banks to use expensive equity capital going forward to back loan commitments that are unconditionally revocable at any time overshoots the mark. This step will force banks to review, and potentially reduce, the funding facilities they grant to customers. The most disappointing aspect for the BVR overall is the almost complete absence of proposals by the European Commission for ways to ease the administrative regulatory burden for small and medium-sized banks. On the back of many years of discussions about the subject of proportionality, more action from the Commission had been expected. “Current regulatory frameworks already place a disproportionately heavy burden on small and medium-sized banks. Against this backdrop, there is an urgent need for improvement in respect of the proportionality of rules in the draft legislation for the implementation of Basel III. Practices in other countries such as the UK and Switzerland can be used as a blueprint in this respect,” emphasizes Hofmann.