Europe must overhaul rules or risk economic decline, banking group warns

By Tommy Reggiori Wilkes

LONDON, Jan 27 (Reuters) – Europe’s economy risks falling further behind other regions unless the European Union overhauls regulation that is undermining banks’ ability to lend, the European Banking Federation has warned.

The current situation was “neither satisfactory, nor sustainable,” the industry group said in a letter addressed to European Commission officials including President Ursula von der Leyen.

“The regulatory and supervisory landscape has grown increasingly complex and fragmented,” EBF President Slawomir Krupa, who is also CEO of French lender Societe Generale, wrote in the January 19 letter seen by Reuters.

“Banks, already subject to high capital requirements, operate under the spectre of further increases.”

Krupa cited data the EBF gathered for 2021-2024 showing 15 major banks had to hold more than 100 billion euros ($119 billion) in additional capital because of discretionary supervisory measures. 

Ninety percent of net capital generated went towards meeting those measures, and 1.5 trillion euros in potential lending capacity was lost, the EBF said.

WEAK GROWTH HAS LONG TROUBLED BUSINESSES, POLICYMAKERS

Europe’s relatively weak economic growth rates have long troubled policymakers and businesses, while efforts to integrate the region’s disparate banking sectors have struggled.

A spokesperson for the European Commission said simplification of rules was a “central priority,” with the Commission already putting forward measures to reduce complexity and support a more integrated single market.

Simplification, however, was not only the responsibility of the Commission, with Europe’s parliament, national governments and supervisors all having a role, too, the spokesperson said. 

Findings from a report the Commission is preparing on the regional banking sector competitiveness “will help inform our assessment of where targeted measures could most effectively support banks’ ability to compete and finance the European economy,” the spokesperson added in emailed comments.

TRUMP PUSHES FOR FEWER RULES FOR US BANKS

U.S. President Donald Trump is pushing regulators to slash red tape – potentially handing Wall Street giants even more firepower – and UK regulators are easing some rules.

Recent changes in the U.S. and the UK “highlight the strategic importance of regulatory reform, as Europe is risking further competitive disadvantage in terms of a level playing field that could be irreversible for our economy,” Krupa wrote.

European banks are enjoying a run of record profits with share prices at their highest since the 2008 financial crisis, thanks to improved lending margins and a benign backdrop for lending. 

The European Central Bank in December proposed to simplify bank regulation, but stopped short of easing overall financial burdens. 

Vice President Luis de Guindos said this month the approach supported bank resilience, and that capital demands were not holding back lending. Some supervisors argue privately that lower requirements will swell shareholder payouts, not lending.

The EBF said the EU could do more to simplify the regulatory landscape, including eliminating capital duplication, removing the systemic risk buffer and ensuring rules for banks’ trading divisions are aligned with the U.S.

($1 = 0.8413 euros)

(Reporting by Tommy Reggiori Wilkes; Editing by Jan Harvey and Bernadette Baum)