European authorities struggling to foster smaller banks
The European Union has yet to find a way of tailoring capital rules to smaller banks without making them less able to withstand market shocks, a top banking regulator said.
States like Britain and Germany have been calling for EU rules to be made more "proportionate" for smaller banks to help them grow and lend more to the economy.
While work on this has already begun at the European Banking Authority (EBA), which writes and co-ordinates banking rules across the 28-country bloc, it has yet to finalise its approach. "I would say there are some obvious areas where this can be easily conceived, such as in reporting," Adam Farkas, EBA's executive director, told the Reuters Regulation Summit yesterday.
"But my sense of the mood of the general policymaker community is that the appetite for differentials in prudential requirements is not very strong," Farkas added.
The challenge for regulators is how to fashion simpler rules to different parts of the banking system, with size not always the obvious yardstick, he said.
"I am deliberately not using the notion of size as the only measure because we did have major issues in the European banking system with small banks," Farkas said.
In Spain, problems at relatively small lenders ended up crippling the system and requiring an EU bailout.
"What we are trying to think of is how would you design proportionate rules to different types of banks in Europe without undermining the prudential standards," he added.
Regulators are struggling to balance regulation rushed through since the financial crisis with the current need to encourage more lending. (Reuters)