Grasping Opportunity for Genuine Alleviation
In a move to establish equal competitive conditions in continental Europe, German supervisors have presented plans to relieve banks from excessive bureaucracy and Basel regulation. The proposed changes, if approved, would significantly ease reporting obligations and stress tests for most institutions, potentially slowing down consolidation in the banking sector.
According to the plans, the regulatory regime for small and medium-sized institutions would disregard risk weighting, thus reducing costs. This regime is subject to approval by Brussels, and the process could take years to go through all instances.
For institutions with a balance sheet of up to 10 billion euros that opt for the new regime, an increased leverage ratio would be applied. This means that equity capital would be set in relation to the balance sheet size regardless of risk. The height of the capital buffers that banks must maintain, determined by the risk content of the balance sheet sizes, would be rendered obsolete with this proposal.
The current leverage ratio stands at at least 3%, and according to the supervisors' proposal, it would be raised. However, no explicit mention of a new Leverage Ratio is made in the text, but it can be inferred that the regulatory changes may involve a new Leverage Ratio.
It's worth noting that most German banks would benefit from the proposed changes, as only a small number of savings banks and cooperative banks have balance sheets exceeding 10 billion euros. The new risks associated with the proposed relaxations are calculable as they only apply to institutions that do not reach systemically critical size.
The move comes in response to the UK delaying the implementation of Basel III to 2027 and the USA not implementing it at all. Several European governments have discussed plans to take measures for a level playing field in Europe in connection with a possible easing of US bank regulatory requirements. However, specific named governments are not detailed in the available search results.
The proposed changes could potentially de-regulate up to 40 cooperative banks each year, decreasing the pressure on smaller banks to seek a merger in the long term. This could lead to a more diverse banking landscape in Germany, providing more choices for consumers and businesses.
In conclusion, the proposed regulatory changes aim to simplify the banking sector for small and medium-sized institutions, potentially leading to a more competitive and diverse market in Germany and Europe. The changes are still pending approval and could take years to be fully implemented.
