Home Banking issues Regulation & Supervision A regulatory challenge  


18 may 2017

A regulatory challenge

All of the work carried out by regulatory bodies still has the same objective: guaranteeing the stability of the global financial system and preventing serious crises by establishing international rules.


Stability of the sector: mission accomplished

Since 2008, the banks have made significant progress in terms of increasing their stability, and important advances have been made in terms of banking regulation: the development of the banking union, the establishment of the single supervisory mechanism and of a resolution mechanism, etc.

The G20 recognised that capital levels are now satisfactory, stating at the launch of new Basel Committee projects that they should not lead to a significant increase in regulatory requirements.

Completion of the post-crisis regulatory agenda through the finalisation of the "Basel III" reform is currently underway. However, the Basel Committee's work on comparability of risk measurements could increase capital requirements in light of the proportion of loans on bank balance sheets.

Tightening prudential rules would have a significant negative impact on the use of bank lending to finance the economy, especially in Europe and in France.

Preserving the financing model against US competition

The Basel Committee's efforts are focused more on standardising risk measurement and the model they tend to use is that favoured by English-speaking countries.

The new rules may call into question the internal risk measurement models that allow French and European banks to calculate their capital requirements. This would reduce the risk sensitivity of the models used by the banks.

Through its joint actions with other European industrial banking and non- banking associations, FBF regularly warns the Committee of the potential impact on financing for the European economy, most of which is handled by banks.

It asks for the risk sensitivity of banks' internal models to be maintained so that they can better assess risks and maintain financial stability. The final decision of the Basel Committee has been postponed to 2017.

A more strategic vision of the Capital Markets Union (CMU)

At the end of January 2017, the European Union launched a public consultation on the CMU mid-term review. Its objective is two-fold: to prepare a progress report on European legislative initiatives launched since 2015 and to ask market players about the positive and negative aspects, as well as what improvements should be made to the Commission's action plan.

FBF has always been extremely supportive of the themes covered by the Commission with respect to the CMU, which were initiated.

In 2015. In fact, French Corporate and Investment Banks (CIBs) are leaders among European CIBs and in position to play a keyrole in the evolution towards more market financing, made necessary by regulations.

The major themes of the FBF's position are related to the following items:

  • Review the CMU action plan subsequent to BREXIT;
  • Think about a new, more economic approach that is not so dependent on regulations to capitalise on the strengths of the European market and its economic players;
  • Maintain the banks' active role in financing the economy
  • Stop introducing new regulations for a period of time and review some of the negative effects of regulations adopted since 2008;
  • Try not to take an overly inflexible approach to standardisation at the European level;
  • Promote a long-term financing and investment policy;
  • Review the governance and responsibilities of European supervisory authorities (especially ESMA).

Another crowded agenda of major reforms in 2017

In terms of regulations, aside from the Basel Committee discussions currently underway, there are still some new rules to implement and important debates that must be settled in 2017. This involves striking a balance between tightening prudential requirements and effectively financing the economy.

  • The application in 2018 of the new IFRS 9 accounting standard. This standard defines new rules on credit risk impairment and threatens loans to SMEs by requiring that they be covered by provisions for statistical risk of losses from the moment they are approved.
  • European Union financial transaction tax (EFTT). Explored by 10 countries under a stronger cooperative framework, the main impact of this plan, if it comes to fruition, will be to penalise corporate financing in the countries in question. The tax runs counter to the Capital Markets Union, and will cause harmful fiscal fragmentation in the financial markets, particularly the Paris Bourse.
  • The implementation of the PRIIPs regulation has ultimately been postponed by one year. The FBF, in conjunction with other professional associations, asked to further postpone the implementation of the text so that standards ensuring clear and transparent disclosures for investors could be defined.
  • Meanwhile, details regarding the European deposit insurance scheme (EDIS) have yet to be hammered out. In this regard, the profession is recommending a reinsurance system in which national deposit insurance funds can be maintained and in which the soundness of beneficiary banks must be verified in advance;
  • The revision of the CRR/CRD 5 legislative package proposed by the European Commission on 23 November 2016 includes some improvements with respect to financing the economy, such as the extension of the scope of the "SME supporting factor" for loans greater than 1.5 million and the new tweaks to the prudential framework for banks with respect to infrastructure finance. There are still some areas that could be improved, such as the implementation of the Basel Standard on interest rate risk (IRRBB), which would make it possible to maintain the French system of financing home loans at fixed interest rates.
  • The BRRD2 proposal changes the provisions on the prevention and resolution of banking difficulties. It introduces the Total Loss Absorbing Capacity requirement (TLAC) into European law, specifies the calculation of the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) provided for in the BRRD Directive and the hierarchy of bank creditor. The purpose of these systems if any problems arise is to provide a cushion that the bank can use, protecting depositors and tax payers. Some aspects must be clarified in order to prevent a double penalty for major banks, which must apply both ratios (MREL and TLAC).

Top of the page