Banks: Italy, France, and Germany Take a Stand with a Letter to the EU

European Banks Seek Regulatory Relief

Germany, France, and Italy have united in an urgent appeal to the European Union, emphasizing the need to reduce excessive regulations imposed on the banking sector.

According to Bloomberg, the three countries’ finance ministers articulated their concerns in a joint letter to the EU, urging the Commission to refrain from launching new large-scale initiatives that would further constrain financial institutions in the short to medium term.

Prioritizing Economic Growth

Last week, French President Emmanuel Macron echoed these sentiments, warning that an overabundance of regulations could diminish Europe’s overall competitiveness.
He stressed that the EU’s priority should be to bolster economic growth instead of continually restricting the banking system.

Globally, a trend toward deregulation is emerging; for instance, the United States has halted the implementation of new rules under the Basel Endgame strategy.
This initiative was originally designed to prevent a recurrence of the financial crisis that unfolded in March 2023 with the collapse of Silicon Valley Bank (SVB).

Similarly, the United Kingdom has adopted a more lenient approach towards British banks to expand their operational flexibility.

Focus on Competitiveness

The three European economies have articulated a desire for the EU to prioritize the competitiveness of the financial sector, particularly banks, as outlined in their letter dated September 24th.

The finance ministers reminded the EU that several recent initiatives share the common goal of reversing Europe’s declining competitiveness and highlighted that the financial sector should not be exempt from this consideration.

Support from Analysts

A spokesperson for the European Commission confirmed receipt of the letter, indicating that decisions will ultimately be made by the newly appointed commissioners.

John Berrigan, the director-general of the EU’s financial services division, acknowledged last month the complexities of introducing new regulations aimed at safeguarding Europe’s financial stability amid economic uncertainty and geopolitical tensions.

European banks are likely to find allies among financial analysts, like those from KBW, who recently emphasized that European banking supervision shows “little regard for growth” and that risk-averse practices stemming from the financial crisis are squeezing credit availability in Europe.

A Call for Simplicity

Germany, France, and Italy are likely to have the support of Mario Draghi, former ECB president, who in early September outlined his report on EU competitiveness, urging Europe to awaken from its current sluggishness.

The three countries argue for the simplification of the regulatory framework, aimed at lessening bureaucratic burdens on the banking industry and enhancing decision-making flexibility.

Concerns Over ‘Green’ Regulations

Among the burdensome regulations identified is the “green asset ratio,” which evaluates banks’ portfolio sustainability in regard to climate change.
The finance ministers criticized these stringent measures as excessive and in need of reevaluation.

The joint letter calls for the Commission to adopt a more “consistent and realistic” approach to climate-related matters and transitional risks.

Ultimately, it remains to be seen whether the new European Commission, led by Ursula von der Leyen, will heed the banking sector’s call for relief, amidst ongoing challenges such as the lack of a true banking union and capital markets union that hinders their competitiveness against their U.S.
counterparts.