Top European Central Bankers Push for Simpler Banking Rules

Four of the European Union’s top central bankers urged the bloc’s regulatory arm to simplify the mass of rules that commercial lenders blame for increasingly putting them at a disadvantage to international competitors.

A “comprehensive analysis” of the requirements could help ensure a “level playing field with other major jurisdictions,” the governors of the Spanish, German, Italian and French central banks wrote to the European Commission in a letter seen by Bloomberg News.

The advent of the Trump administration in the US has emboldened finance executives around the world to demand the roll-back of multiple regulations put in place after the 2008 financial crisis. While the central bankers said they’re not calling for deregulation, their letter is likely to provide ammunition to politicians who argue that banking rules have become so complex they constrain economic growth. 

“We believe that the priority should now be to develop a holistic assessment of the rules that apply to European banks,” Jose Luis Escriva, Joachim Nagel, Fabio Panetta and Francois Villeroy de Galhau wrote in the letter this month. 

A representative for the commission confirmed receipt of the letter but declined to comment further. Officials for the Bank of Spain, Bundesbank, Bank of Italy and Banque de France declined to comment. 

The analysis would serve to identify “areas where the European framework is unduly complex and may create competitive distortions at international level, without any significant financial stability benefits,” they wrote.

‘Unintended Layers’

The work should include so-called level 2 and 3 standards, which are drafted by supervisory authorities rather than legislators, “to ensure that they do not cumulatively add unintended layers of rules and expectations,” the central bankers wrote.

The assessment should encompass microprudential, macroprudential and resolution frameworks and could also look at the “proliferation of additional regulatory projects” that might hinder a stable, predictable and simpler framework, they added.

Bloomberg News reported earlier this month that the governments of Germany, France and Italy are stepping up their lobbying for an urgent review into weaknesses in Europe’s banking sector.

Commercial bankers have called on the commission to go even further, with some lobby groups seeking a “moratorium” on regulation. The industry has multiple demands, including a laxer implementation of capital requirements to less burdensome ESG reporting standards and less onerous treatment of securitizations.

The debate around regulation is starting to change as governments are “desperate for growth” given public indebtedness and calls for more spending, according to Jonathan Hill, a former European Commissioner.