Banks see softer side of Brussels as EU readies rule revamp

Bloomberg

After years of aggressive regulation reining them in, Europe’s banks are starting to get some slack from the policy makers in Brussels.
The European Union has opened up the entire financial rule book for review, including contentious issues such as the cap on bankers’ bonuses. Faced with weak banks and an anemic economy, regulators have made clear that global standards will be adapted to suit Europe’s needs. The legislative conveyor that churned out more than 40 laws after the crisis to curb banks’ risk-taking and enforce market discipline has slowed to a crawl.
Nothing epitomizes this shift better than a bill introduced in 2014 by Michel Barnier, then the EU’s financial-services commissioner. Intended as the nail in the coffin of too-big-to-fail banks, it would ban proprietary trading and allow supervisors to force banks to hive off their high-risk trading operations. More than two years later, it’s mired in party politics and going nowhere fast. Jonathan Hill, Barnier’s successor, says there’s “still a need for it,” but hasn’t thrown his full weight behind the bill.

Low Rates
The case for Barnier’s bill has become less clear-cut since it was proposed. Europe’s banks have been buffeted by rock-bottom interest rates and feeble growth, cutting thousands of employees and losing billions of dollars in market value. EU and global regulators have put new rules in place to contain the fallout from bank failures, such as the Financial Stability Board’s rules on total loss-absorbing capacity, introduced last year.
Hill makes no secret of his preference for “fewer detailed rules, more judgment” when it comes to financial regulation. Since taking over from Barnier in late 2014, he has made a mantra of the need to make sure that laws enacted “ when you’re firefighting, legislating at speed and under stress” don’t have unintended consequences that stifle lending and investment.
Late last year, Hill called for evidence of the impact of regulations on firms and the economy and said he was open to altering rules. That opened the door to a flood of lobbying by the biggest banks and financial firms in Europe, including Barclays Plc, Deutsche Bank AG and SocieteGenerale SA. Nearly 300 responses, some hundreds of pages long with annexes itemizing problems, were sent to Hill’s office.
‘Cautious Approach’
In a speech to bankers and regulators on April 21, Hill indicated that he’s warming to industry arguments on a range of issues, starting with lighter capital, reporting and disclosure requirements for smaller banks. On market liquidity, which banks say has been squeezed by regulation, Hill said that policy makers will “be careful to avoid anything that could make the situation more difficult.”
He told the EU markets regulator to adopt a “more cautious approach” on bond-market transparency after banks warned that proposed standards would damage trading.
Hill also assured his audience that the EU would implement major pieces of the global banking regulatory framework, such as the leverage ratio and the net stable funding ratio, “in a way that works for European businesses.”

‘Shifting the Dial’
“Regulation doesn’t happen in a political and broader economic vacuum,” Hill said in an interview. The balance between reducing risk in the financial system and promoting investment and growth “shifts over time,” he said.
Policy makers are now “trying to get that balance right, and shifting the dial a little more in the direction of that broader macroprudential consideration.”
So where does all that leave Barnier’s “banking structural reform,” the last big piece of the EU’s post-crisis regulatory clampdown?
For Gunnar Hoekmark, the European Parliament’s lead lawmaker on the bill, no law is preferable to a bad law. His proposal on the bill was rejected by the Economic and Monetary Affairs Committee a year ago, and a tentative compromise he later brokered collapsed, leaving the committee fresh out of ideas and momentum on how to bridge the gap between the two main political groups, Hoekmark’s center-right European People’s Party and the Progressive Alliance of Socialists and Democrats.