EU regulators keep capital rules despite bank pushback

European banking regulators have updated their capital rules for lenders, but the changes stop short of the broader revisions sought by the banking industry.

A report released by the European Banking Authority is meant to clarify what the Financial Times said many lenders view as overly complex and duplicative capital requirements. According to the FT’s Tuesday (June 16) report, the update amounts to a rejection of industry calls for major changes to the European Union’s capital framework.

The issue comes as the U.S. and U.K. are both easing banking regulations, the FT reported, prompting complaints from bankers that EU watchdogs have been more cautious about revising restrictions put in place after the 2008 financial crisis.

Fernando de la Mora, co-head of financial services at consulting firm Alvarez & Marsal, told the FT: "These changes are minor relative to those being implemented in the U.S. and U.K., which truly reduce capital requirements." He added: "Most of them are intended to simplify or streamline requirements without impacting the level required."

François-Louis Michaud, new chair of the EBA, told the FT the proposals were not intended to reduce capital requirements, though he said simplification and clarification could eventually lead to lower restrictions for some banks.

"This is about the design of the capital framework, not about the level", he said. "The overall resilience of the system won’t be affected by the proposals. Depending on how the supervisors use the new design, it could change the level of requirements."

Michaud also said the EBA report opens "a number of avenues that can be explored in future" and that it was "certainly not the end game", with the European Commission expected to present its own recommendations on bank competitiveness.

The debate in Europe comes alongside a broader discussion over bank regulation elsewhere. In a recent speech, Federal Reserve Gov. Michael S. Barr said efforts by U.S. banking regulators to loosen oversight could weaken financial institutions and raise financial stability risks.

As previously reported, Barr said recent U.S. regulatory and supervisory steps included decreases in capital requirements, lighter-touch bank supervision, a possible push for reduced liquidity requirements and fewer consumer protections.

"Taken together, the regulatory and supervisory changes recently enacted or proposed represent the most significant deregulation of the banking system since the Global Financial Crisis", Barr said. "They tip the imperative balance that must be maintained between openness and innovation, on the one hand, and safety and soundness, on the other, in a way that will increase the risks of financial instability."

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