(Bloomberg) -- Germany, France and Italy urged the European Union to show restraint in financial rule making and instead focus on boosting the competitiveness of its banking sector, the latest sign of a global political shift to prioritize economic growth over regulation.
The EU’s three biggest economies want the bloc to ease some rules that are already in place so that banks will have “a level playing field” with other major jurisdictions. They also called on the next European Commission to “refrain from launching new large-scale initiatives” in finance over the short to medium term, issuing the plea in a joint letter to the director general for financial services.
The EU is facing a backlash for its propensity to regulate, with French President Emmanuel Macron warning this week that too much rulemaking risks making the bloc uncompetitive. The US has already dramatically rowed back its proposals for implementing the latest package of post-crisis banking reforms, known as the Basel Endgame, while the UK’s final version of the same rules was widely welcomed by banks as being much more favorable than the original proposals.
Germany, France and Italy want a “stronger emphasis on the competitiveness of the financial sector, particularly banking,” they wrote in the letter.
“Recently, multiple initiatives have been put forward all sharing a common goal; reversing Europe’s declining competitiveness,” the governments wrote in the Sept. 24 letter. “The financial sector should not be immune to this reflection.”
A European Commission spokesperson confirmed receipt of the letter and said it will be up to the next set of commissioners to address the issues. A spokesperson for the German finance ministry said they could not comment on ongoing policy discussions. The Italian finance ministry did not respond to requests for comment, while the French Treasury had no immediate comment.
Political Shift
While politicians are pushing growth, key global regulators argue that the political shift away from regulation in favor of growth is dangerous as tough regimes are needed to avoid a repeat of the financial crisis. New risks like turmoil in the Middle East and a potential shadow banking blow-up also need to be mitigated, they said, asking not to be identified as the discussions are private.
“There are many things to streamline and simplify in EU financial regulation,” said Nicolas Véron, a regulation expert and senior fellow at think tank Bruegel. “Conversely, the EU has learned the hard way that allowing banks to be under capitalized is not a good idea. A general relaxation of bank capital requirements would be harmful to the EU economy, not beneficial, irrespective of what bank lobbyists are saying about it.”
The letter was addressed to John Berrigan, the director general for financial services for the EU’s executive arm. He told an event last month that it is now a lot harder to argue for new rules in the interest of financial stability, but that he was not going to “suddenly move back to light touch regulation.”
Europe’s banking supervisors have “little regard for growth” and their risk aversion since the financial crisis is damping new lending, analysts at KBW warned in a note earlier this month. “Loan growth at banks should be more welcome than relying on non-banks,” they wrote.
In the letter, the three countries call out six areas for attention in the next commission cycle, which begins in November. These include tweaking its proposed adoption of the capital reforms affecting banks’ trading books so that the EU’s lenders are not at a disadvantage if the US decides to “diverge significantly” from the global deal.
The group also wants the EU to work harder on streamlining regulations, “with the ultimate goal of easing the administrative burden for the banking industry and to add flexibility to our rule making.”
The “green asset ratio” used to assess how sustainable banks’ portfolios are should also be revised, they wrote. The commission should take a more “coherent and realistic” approach to climate and transition risks, they added.
The letter comes just weeks after former European Central Bank president Mario Draghi published a long—awaited report on ways to stoke the EU’s growth. The commission is already due to review the banking system by the end of 2028.
France, Germany and Italy now want an interim report on banking industry competitiveness “to be finalized long before” that deadline.
--With assistance from Nicholas Comfort, Lyubov Pronina, William Horobin, Alessandra Migliaccio and James Regan.
(Updates with commission confirming receipt of letter in sixth paragraph, adds comments from eighth paragraph.)
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