MNI: EU Eyes Temporarily Softer Rules On Bank Mortgage Capital

European authorities are likely to temporarily relax rules on banks’ internal modelling of mortgages at risk of default, as a move to assist the industry as it faces lighter regulation of U.S. competitors and as progression towards the European Union’s long-term goals of banking and capital markets union continues to be painfully slow, industry sources told MNI.

While authorities are still moving towards full implementation of Basel III, they have also acted to streamlining compliance and reporting standards, the sources noted. The European Commission also last July decided to delay until next year the fundamental review of the trading book.

There could also be opportunities for simplification of the supervisory review process, and of Pillar 3 bank-specific capital requirements, according to European Parliament member Jonas Fernandez, who acted as a rapporteur on measures to ease capital and accounting burdens for banks during the Covid pandemic.

“They should unify the information and standard requirements that commercial banks need to comply [with] when reporting to national and European authorities,” he said.

“The lack of political courage and pro-European appetite in the current Commission makes impossible to improve European banking competitive through deeper integration,” he said, adding that such integration “would allow a bigger leap than less capital requirements.”

COMPETITIVE THREAT

The European Commission signalled earlier this week in its proposal for reform of the securitisation markets that it is going in the direction of lower capital requirements and some relaxation of what is now perceived by the industry as the overly strict regulation of the market put in place following the global financial crisis. 

European Parliament Committee on Economic and Monetary Affairs member Markus Ferber said the Commission needed to quickly adopt a more overarching strategy to face down the competitive threat from the U.S., where he said Basel III, has been implemented with "significantly less ambition" than in the EU.

"So far the Commission's approach has been a bit piecemeal, including the two one-year extensions of the market-risk framework and the adaptation to the NSFR (net stable funding ratio). I very much hope that there is more to come and that an overarching strategy will take shape sometime soon. The Commission has announced it will look into the competitiveness of the European banking sector as part of the SIU (Savings and Investment Union) strategy and I would be very much in favour of moving this exercise forward."