Fostering a more effective single market for banking would necessitate breaking down those barriers, Campa said. “There are things that we can do … but that requires a significant political consensus because those rules are there for a reason; home-host issues are there for a reason.”
The EU’s latest update to bank capital rules, known as Basel 3, applies requirements at the level of individual entities and the consolidated group, as it was politically untenable to find a more simple way of implementing the reforms — a decision Campa said “leads to excess requirements.”
The most recent piece of banking legislation negotiated in Brussels, a joint crisis management plan for mid-sized banks, ended up as “an effort in complexity” rather than “an effort in simplification” because political wrangling resulted in a very complex text, Campa said.
In those negotiations, countries resisted a move to ease access to EU crisis funds for failing mid-sized banks, meaning that the political deal on the rules imposed myriad conditions for lenders to be able to tap the funds in a crisis.
As for banks’ regulatory capital buffers — the cash they’re mandated to hold against risk to avoid future taxpayer bailouts if they fail — Campa said they are “complex in Europe because we have many authorities making decisions,” and that it would be “good to try to clarify” how buffers are set.
“The EU system is very complex. It’s not about whether the level of requirements is high or low. It’s just that there are so many different buffers … and they’re set by different institutions. That just leads to complexity and to lack of clarity,” Campa said.
