This legislation completes the implementation of the Basel III framework, the international set of regulatory standards that was agreed between governments, central bankers and financial regulators of the world’s leading economies in the aftermath of the global financial crisis of 2007-09 to restore stability to the banking sector and prevent a recurrence of its near-collapse during the crisis.
Finance Watch understands that the text adopted today contains numerous clauses that deviate materially from the international standards and go even beyond the already generous concessions made to the banking sector in the European Commission’s original legislative proposal. In its April 2022 policy brief, Finance Watch had warned that the Commission’s overriding concern to avoid imposing any additional capital requirements on the very largest, systemically important European banks, in particular, would likely come at the expense of financial stability and the faithful implementation of international agreements.
Thierry Philipponnat, Chief Economist of Finance Watch, said: “It is extremely worrying to see that the arguments of banking lobbies to dilute the Basel III framework have gained so much traction in the ongoing legislative discussions. The EU Council and the European Parliament must work for the public good, not for the numerous private interests trying to tweak the rules in their favour. This is vital for the EU economy but also, behind the technical debate, for its democracy”.
Only last Friday, leading EU financial regulators and supervisors, published a blog post expressing their concern about the co-legislators’ apparent disregard for the EU’s international commitments. Already now, the Basel Committee deems the EU to be “materially non-compliant” with its rulebook and the proposed new deviations may well result in a downgrade of the EU to “non-compliant” status. Moreover, their blog post noted that Europe and European banks would suffer not only in terms of reputation, but also in terms of resilience if the co-legislators fail to take a prudent regulatory stance in the face of an increasingly uncertain economic outlook. Finance Watch strongly supports this critical assessment.
Christian Stiefmueller, Senior Adviser at Finance Watch, said: “Finance Watch fully supports the criticism of European banking supervisors. By watering-down the implementation of Basel III in the EU, EU legislators are putting financial stability at risk and undermining international agreements”.