DSGV on the European Parliament’s draft report on the banking reform package CRR II / CRD IV

According to Dr. Karl-Peter Schackmann-Fallis, Executive Member of the Board of the German Savings Banks Association (DSGV), the draft report on the reform of the European capital and liquidity requirements (CRR II / CRD V) provides a good basis for more reasonable banking regulation, taking better account of various business models and the risks associated with them. “The draft report has incorporated the principle of proportionality and is moving in the right direction”, said Schackmann-Fallis. The draft was presented yesterday by Peter Simon, the rapporteur of the European Parliament’s Committee on Economic and Monetary Affairs (ECON).

“Freeing small institutions with less complex business models from excessive administrative regulatory burdens, without losing sight of security and financial stability, is absolutely the right thing to do. In this respect, a good trade-off is achieved in many parts of the report”, said Schackmann-Fallis. Not only has the value of Europe’s diverse banking landscape been recognised, but greater account has also been taken of this diversity in the paper.

As far as proportional regulation is concerned, the draft report goes beyond the proposals made by the EU Commission in November 2016. Instead of introducing an absolute threshold of 1.5 billion euro balance sheet total, the report proposes that the threshold should also be set in proportion to a Member State’s gross domestic product. The larger the economy, the higher the threshold. For Germany, this would lead to an increase of the threshold to a balance sheet total of approx. 4.6 billion. “We believe that it would be appropriate to ease the burden further, in terms of both the group of banks affected and the regulatory areas covered, because retail banks do not pose a risk to system stability even above this threshold – on the contrary”, said Schackmann-Fallis. Banks classified as “small institutions”, for instance, are to be granted some relief with regard to reporting and disclosure requirements. More proportional requirements are also to be introduced with regard to fees and corporate governance.

Maintaining the privileged position of the lending business with SME customers was also described as “a good proposal” by Schackmann-Fallis. This will enable institutions to hold less capital for loans granted to small and medium-sized enterprises (SMEs), and this, in turn, will prevent an increase in the cost of lending to SMEs.

The DSGV believes that the proposed rules on the Fundamental Review of the Trading Book (FRTB) do not go far enough. According to Schackmann-Fallis, the latter should be exempted from the current CRR II / CRD V package while the discussions are still ongoing at the Basel level. To create a level playing field, it is necessary to ensure that European institutions will not be put at a disadvantage compared to their transatlantic competitors.