Europe’s complex banking rules increase risk, warn financial supervisors in Norway and Denmark
Europe’s thousands of pages of banking rules and directives have become so burdensome to enforce that the ability of the truer regulators to see the real risk that builds up in the financial systems.
This is a warning from Norway and Denmark’s chief financial supervisors, according to Financial Times.
In separate interviews with the newspaper, Morten Baltzersen, head of the Danish Financial Supervisory Authority, and Jesper Berg, head of Denmark’s counterparty, have sharply criticized the breadth and complexity of bank regulation.
– The global financial crisis of 2008 justified more complexity to remove loopholes and to tackle the interconnection of financial institutions. Over time, the pendulum has swung too much in the direction of complexity, Baltzersen said.
– It is too much, and you risk going into the details as opposed to thinking about what the real risk is, Berg argued.
– Banks are not innocent
Global banking regulation was revised in the wake of the financial crisis, most fundamentally through the Basel III agreement, which dramatically increased banks’ capital requirements and regulators far more vigilant in monitoring risk. The latest version of the framework has 1626 pages.
The EU now has more than 80 financial services directives, which also apply to EEA members such as Norway. They include several hundred pages of proposals for implementing the latest Basel measures in EU law.
In the eurozone, the supervisory burden is shared by national supervisory authorities and the European Central Bank.
Baltzersen believes that the complex banking rules have led to the supervisory authorities having «fewer and fewer funds for supervision, because we have to spend so much time taking complex legislation and legal disputes about regulation».
According to him, the regulator also risks not identifying the true risks in financial systems and marked because they monitor so many rules. Baltzersen believes that the very binding European regulations provide “less and less room” for regulators to exercise the discretion necessary for good supervision.
– The complexity has increased while prudent substance has not done so, he says to FT, and points to the EU decision to introduce facilitations for banks’ lending to small and medium-sized enterprises as an example of capital requirements being «partially diluted, which is harmful for financial stability ».
Berg in Denmark said that his agency of 400 people could not supervise the implementation of the EU’s complex rules and at the same time succeed in its core function of safeguarding the Danish financial system.
He believes the banks also bear some of the blame since they have been lobbying for additional rules in favor of their own business.
– Banks are not innocent here. All banks want regulation that suits their competitive advantage, he says to FT.
The EU is responding
Part of the operational burden comes from the EU’s decision to apply Basel standards across all banks, not just the larger ones, such cases are in the US.
Isabelle Vaillant, Director of Supervisory Regulation and Supervision Policy at the European Banking Authority (EBA), who set up the EU-EEA Joint Banking Code, said she did not see a problem of “over-regulation” in general, but that the EBA was trying to make rules “more accessible and digestible »for less complex and less risky banks.
The Basel Committee on Banking Supervision has also implemented the regulations to see if it can be simplified.
An official of the European Commission said that the complexity of the regulation is “to some extent unavoidable”, given how complicated finance has become.
– We are aware of the administrative burden associated with regulation, which of course must be kept to a possible minimum. But these are the costs to ensure that the financial system is sound. EU regulations are subject to regular review. If necessary, we will revise the rules, the official told FT.(Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We want you to share our stuff using a link that leads directly to our pages. Copying or other use of all or part of the content may only be done with written permission or as permitted by law. For further terms see here.