EU bank watchdogs warn on industry plans to soften regulations

European bank regulators issued a joint warning against watering down tough new capital requirements, after the industry seized on the pandemic to lobby for less onerous rules.

Twenty-five central banks and watchdogs from across the region sent a letter to the European Commission on Tuesday calling for a “full, timely and consistent implementation” of global standards known as Basel III.

The package is about to enter a decisive phase in Europe with the commission’s proposal for how to translate it into law due before the end of the year.

Regulators across the globe vowed after the financial crisis of 2008 to force banks to hold much bigger capital buffers, so the industry would never again need to rely on taxpayer-funded bailouts. Since the pandemic, however, banks have argued that softer capital demands would help them provide more credit to businesses pummeled by lockdowns.

But regulators say the COVID-19 crisis has underscored the need for a well-capitalized bank sector. “The pandemic shows that more resilient banks are better able to support the real economy, even during times of crisis. Diluting the framework would not be in the best interests of Europe.”

Mairead McGuinness, the European commissioner for financial services, said the region has to implement Basel III “in a faithful way” because it is part of the global banking system.

“I think our banks understand why implementing is important but equally we are very clear, and we have been given political direction, that we have to be conscious of where we are today post-COVID,” she told reporters. The economy is “still in a phase of transition perhaps” which highlights “the importance of not pushing an increase in capital requirements immediately on the banking system.”

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