Yesterday, the European Parliament adopted the so-called “CRR quick fix”, a far-reaching softening of the capital adequacy rules for banks in the Corona crisis. Since Socialist rapporteur Jonás Fernández has secured the approval of the Council of Ministers for the legislative proposal upfront, it will enter into force promptly.
The decision was taken with the votes of Christian Democrats, right-wing Conservatives, Liberals and Social Democrats. We Greens voted against the proposal because we believe that it is highly unbalanced. Accompanying conditions would have been needed to ensure that the relief granted would benefit the financing of the real economy. In particular, we have argued for a binding suspension of dividends and interest payments on so-called CoCo bonds (“contingent convertible bonds” or “AT1 instruments”). Due to the imbalance of the legislative proposal in favour of the banks, not only the Left but also some Socialist MEPs voted against the report of their own rapporteur.
The proposals are intended to prevent accounting provisions for expected credit losses (under the new accounting framework IFRS 9) from reducing banks’ equity in the Corona crisis. We Greens have been fighting this change in accounting rules for years because of their excessively procyclical effects. In addition, temporarily non-performing loans are to be exempted completely from the minimum rules for provisions (“NPL prudential backstop”) if they are covered by a state guarantee. This will initially make possible losses “invisible”. The application of the new rules on the leverage ratio is to be postponed by one year, as also agreed in the Basel Committee on Banking Supervision. Central bank reserves should be excluded from the leverage ratio in times of crisis and book losses on holdings of government debt instruments should temporarily not affect regulatory capital.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group in the European Parliament and Green shadow rapporteur for the “quick fix”, commented:
“The amendment of the capital adequacy rules adopted yesterday by the European Parliament is unfortunately a pure gift package to the banks without any conditionality. Instead of providing targeted support to European businesses and citizens to help them overcome the corona crisis, the package merely props up bank shareholders and risk investors.
For the reconstruction of the European economy after the Corona crisis, it will be crucial that banks provide companies with the necessary financing. However, as experience from previous crises shows, capital relief alone will not prevent a credit crunch. We Greens had therefore called for supplementary conditions to ensure that banks actually use the additional headroom to finance the real economy and not just to compensate their shareholders and investors. However, a majority in Parliament, consisting of Conservatives, Liberals and Social Democrats, preferred to grant the banks relief without any conditions.
The lessons of the Great Financial Crisis have been increasingly forgotten during the last years. Banks and their lobby organisations have repeatedly succeeded in thwarting stricter rules and weakening existing rules. Following the softening of the capital adequacy rules adopted yesterday, the European Commission intends to relax further banking and financial market laws in the near future. We will now work across Europe on alliances that want to oppose a renewed deregulation of the financial markets.”
PS: Invitation: Webinar with EU Commissioner Ferreira on Tue, 23.6. 19:00 “Regional Inequality – The Underestimated Risk for Europe”. My Green colleague Niklas Nienaß and I discuss with the EU Commissioner, Prof. Bachtler (Uni Strathclyde) and yourself how the Europe that is being rebuilt after Corona can create more equality between the regions! Limited, places, register right here!