Several top European central bankers made competing proposals on how to reduce the regulatory burden on lenders as they seek to influence the discussion just weeks before finalizing a report that will set the stage for decisions at the European Union level.
In speeches on Tuesday, the central bank governors of France and Spain, Francois Villeroy de Galhau and Jose Luis Escriva, each floated differing recommendations on how to simplify various capital buffers. Their interventions followed comments from Bundesbank supervision head Michael Theurer in an interview with Bloomberg last week that were designed to salvage the institution’s controversial proposal for bank capital.
The European Central Bank’s High-Level Task Force on Simplification, which counts Villeroy and Escriva among its seven members, was put together earlier this year to drive an EU plan aimed at easing regulatory requirements for banks amid concerns that the bloc’s industry is falling behind the US. Europe’s banks have since privately signaled they don’t expect much relief from the effort as regulators have been keen to say that their proposals are aimed at simplifying rules, not at eliminating them.
The plans are set to be put to the ECB before the end of next month, and they will then be sent to the European Union’s executive arm. People familiar with the matter said previously that the Bundesbank proposals have proved contentious.
A “rethink” of certain overly complex aspects of European regulation, such as the systemic risk buffer, with scope to merge or even eliminate certain buffersRemove thresholds that trigger payout restrictions within banks’ so-called MREL and leverage frameworksStreamline the resolution framework for failing lenders “by achieving a better fit” with international standards for global banks’ loss-absorbing capacityDon’t impose additional requirements on banks as the industry is “sufficiently capitalized”Bundesbank Executive Board member Michael Theurer
Split the so-called capital stack in two, with a clear division between reserves for when a bank is healthy and those for when it failsThe first has to be made up of high quality capital, while the latter would be additional Tier 1 capital and other subordinated debtGive banks more than five years to overhaul how they use AT1, notably if they face a shortfall in capital.