EU’s three biggest countries push for bank deregulation

The EU should slash planned rules for its banking sector to boost the bloc’s ability to compete internationally, France, Germany and Italy said.  

The heads of the treasuries of the three countries — the EU’s biggest economies — made the request in a letter to the European Commission, obtained by POLITICO.

“The more competitive our banking systems, including national champions, the better equipped they will be to finance key European goals,” the authors write in the letter, dated Sept. 24.

The request comes as Europe searches for ways to keep up economically with the U.S. and China — a major focus of leaders like French President Emmanuel Macron, who said this week that the EU “could die” if its economy falls behind globally and should embrace a more protectionist agenda if it wants to survive.

The three EU heavyweights want a regulatory pause for finance rules, saying the bloc should “shift gears and regain its capacity to compete in the global arena” and “put stronger emphasis on the competitiveness of the financial sector, particularly banking.”  

As part of this hiatus, the countries believe the EU should change tack on its rollout of global bank capital standards, after delays of the same rules in the U.S. due to heavy lobbying from the banking industry.

The letter calls on the EU executive to prepare legislation to change the global bank capital standards, called the Basel rules after their origination at the Basel Committee on Banking Supervision, in case the U.S. decides to “diverge significantly” from the internationally agreed rules.

Trump-proofing banking rules

With the U.S. election just weeks away, regulators are concerned that if Donald Trump wins a second term in office he could abandon the American rollout of the rules entirely.  The letter says the U.S. is “expected” to diverge from the rules, without mentioning Trump by name.

The Basel rules, which aim to make bank lending safer following the 2008 global financial crisis, have been written into EU legislation and are set to kick off on Jan. 1, 2025 — although one aspect has already been postponed for a year, relating to how banks cover market risks. The overall framework was agreed internationally nearly seven years ago, in December 2017.

Outgoing EU Financial Services Commissioner Mairead McGuinness, who currently holds responsibility for banking rules including Basel, said at a POLITICO event on Wednesday that she is against further delays. But in the coming months a new chief will take over — likely Portugal’s Maria Luís Albuquerque — who may take a different stance.

One EU diplomat, granted anonymity to speak as they are not authorized to talk to the press, said if the bloc decides to water down the Basel standards after national pressure, it “will mean fatter short-term profits for bank shareholders and management, and society at large will be picking up the pieces in the future.”

Thierry Philipponnat, chief economist at the NGO Finance Watch, argued that the term “competitiveness” is ” increasingly used as a convenient excuse to avoid completing the crucial work necessary to prevent another financial crisis like the one that struck 15 years ago.”

Abandoning international cooperation on finance rules could “trigger a regulatory race to the bottom, where jurisdictions compete by lowering standards, ultimately destabilising the global financial system,” Philipponnat added.