Ladies and gentlemen,
Dear followers of financial industry and financial markets,
This Tuesday, the European Parliament’s Economic and Monetary Affairs Committee (ECON) voted on a comprehensive legislative package to reform European banking rules (CRD, CRR, BRRD). This includes numerous measures to reduce the bureaucratic burden for small institutions. This is in line with our green guiding principle of laying down tough but simple rules for the financial sector. Because, we do not want financial regulation and supervision to contribute to pushing smaller and solid institutions out of the market and thus limit the diversity of actors in the financial sector.
In its proposal to reform banking legislation, the EU Commission had already proposed some limited improvements for better proportionality. However, this was completely insufficient. The rapporteur Peter Simon (SPD) then brought additional proportionality measures into play in his draft report and thus fortunately opened the discussion on more proportionate rules. Following broad consultation with the institutions concerned, independent scientists and supervisors, we Greens tabled even more far-reaching amendments, many of which have been incorporated into the final text. I would like to express my sincere thanks for all contributions! Your feedback, some of which contained highly grotesque stories from the reality of banking supervision, now fills several folders in our office.
A real ‘small banking box’ with a separate set of rules for small, non-complex institutions is still outstanding. However, the simplifications advocated by MEPs yesterday have the potential to significantly reduce the administrative burden on small and solid banks.
Before the rules adopted by Parliament can enter into force, Member States must agree to them. In the forthcoming negotiations with the Council and the EU Commission, we Greens will defend the simplifications for small banks achieved in Parliament.
Scope of application
The administrative simplifications are to apply to small, non-complex banks with a balance sheet total of less than EUR 5 billion, a small trading book and low derivatives business. This goes well beyond the Commission’s proposal, which had only provided for simplifications for banks with total assets of up to EUR 1.5 billion. Rapporteur Peter Simon had initially proposed that national authorities could raise the EUR 1.5 billion threshold. However, on the recommendation of the European Banking Authority (EBA), we Greens have introduced a uniform threshold of EUR 5 billion. The final compromise now provides that EUR 5 billion is the rule and national authorities can lower the threshold, which can be particularly useful in smaller Member States.
In the field of reporting, small banks will only have to submit FINREP reports once a year, as the rapporteur and we Greens had proposed. Instead of the complex NSFR, small banks should report a simplified NSFR (sNSFR, simplified NSFR) with fewer data points. This idea was proposed by the rapporteur and us Greens. The complex Additional Liquidity Monitoring Metrics (ALMM) should no longer bother small institutions, provided that their deposits are sufficiently granular and their assets sufficiently diversified. We Greens had proposed this measure and it was incorporated into Parliament’s final text. In addition, we suggested to waive the daily monitoring requirement for the liquidity coverage ratio (LCR) if an institution meets a ratio of at least 150%. Unfortunately, however, we could not find a majority for it.
In addition, the European Banking Authority (EBA) is to submit a report by the end of 2019 on reducing the bureaucratic burden on small institutions. The Socialist rapporteur had proposed that the reduction in administrative burdens should be at least 10%, as he did not have a majority within his group for further simplifications. Together with the Europe of Freedom and Direct Democracy Group (EFDD), we argued for more drastic simplifications, so that the final text provides for reductions of “at least 10% and ideally 20%”. On the basis of a Green proposal, the EBA’s report should in particular examine whether the frequency for reporting under Article 100 (encumbered assets), 394 (large exposures), 430 (disclosure) can be reduced and whether the reporting of encumbered assets can be disapplied entirely. We Greens had also demanded that the reporting under Article 101 (losses from real estate financing transactions) should only be made annually, but unfortunately did not find a majority.
Furthermore, EBA will be commissioned to develop an integrated reporting system in which all reporting requirements of national and European authorities, including state and local authorities, will be bundled. The rapporteur, like we Greens, had proposed such an integrated reporting system and took up our idea of involving not only supervisors and the ECB, but all authorities that impose reporting requirements. As result of a Green proposal, new reporting requirements may enter into force at the earliest two years after notification, and corresponding reporting templates must be available at least one year in advance.
Finally, based on another Green proposal, it is clarified that institutions must be able to fulfil reporting requirements with the accounting standard they already use. Forcing users of national GAAP into the international accounting standard IFRS is not permitted.
If institutions as described under ‘Scope of application’ are not only small and non-complex, but have also not issued any instruments listed on the stock exchange, they should only have to publish a reduced number of key figures (key metrics, Article 447 CRD V). We Greens were in favour of a complete exemption from the disclosure requirement, but unfortunately we were unable to find a majority in favour of it.
If an institution has only a small trading book (threshold raised from EUR 20 million to EUR 50 million as proposed by the Commission), it should not be obliged to meet various organisational requirements for maintaining a trading book (Articles 102, 103, 104b and 105 (3) CRR 2). This relief was proposed by both the Greens and the two Christian Democrat Members Othmar Karas and Thomas Mann.
As proposed by the Commission, the deferral of payments over several years may be waived, provided that an employee’s variable remuneration does not exceed EUR 50,000. As proposed by the Greens, the requirements for the suitability of supervisory board members must not result in managing directors of companies affiliated with the bank no longer being eligible to the bank’s supervisory board. We Greens also pushed through the idea that the suitability of supervisory board members could be reviewed by the competent authority for practical reasons before and after their appointment.
Interest rate risk in the banking book
EBA is to develop a simplified calculation method for small banks for the new standard approach to calculate interest rate risk. This is what we Greens and the Liberals had proposed.
Recovery and resolution (BRRD)
If a bank meets a leverage ratio of 10% (proposed by the Greens) and can be wound up under normal insolvency proceedings (proposed by Christian Democrats Ferber, Balz, Karas and Langen), it is not obliged to meet certain reporting and disclosure requirements.
There was no support from the other groups for our proposal to completely waive the annual Supervisory Review and Evaluation Process (SREP) setting additional Pillar 2 capital requirements or at least reduce the frequency of the SREP in exchange for fulfilling a common equity tier 1 ratio (CET1) of 15% and a leverage ratio of 6%.
Thank you for your interest!
With green, European greetings
Your Sven Giegold
Green proposals to strengthen proportionality in European banking regulation:
A compromise text adopted in the European Parliament’s Committee on Economic and Monetary Affairs to strengthen proportionality in the field of reporting and disclosure: