The EU Commission’s proposed ‘single-stack’ approach for Basel III finalisation would harm European banks

BRUSSELS, 27 October 2021 – The European Savings and Retail Banking Group (ESBG) calls on the European Parliament and the Council of the EU to reconsider the output floor implementation on a ‘single-stack’ approach included in the European Commission’s proposal for the finalisation of the Basel III standards in the EU, announced today.

The ‘single-stack’ approach would mean applying the output floor to EU-specific capital requirements, on top of internationally agreed ones. ESBG calls for the use of the ‘backstop approach’, meaning applying the floor only to internationally agreed capital requirements. The ‘backstop approach’ would help preserve and strengthen the EU’s diverse banking system. Otherwise, the ability of Europe’s diversified banking sector to provide finance to the real economy and foster economic growth could be hampered.

“ESBG and its members believe that the Co-legislators should implement the Basel III framework adapting it to the specificities of the European banking market, where needed. This includes an application of the output floor that does not exceed what is explicitly laid down in the agreement on the finalisation of Basel III”, said Johanna Orth, Chair of ESBG’s Task Force on Basel.

The package of reforms to finalise the Basel III framework is designed for internationally active banks. Therefore, when implemented within the EU regulatory framework the EU special features should be considered, including those which are already enshrined in the banking regulation. In particular, the so-called SME supporting factor should be retained, as it provides the right incentive to stimulate real economic growth.

“The implementation of the Basel standards within the EU regulatory framework should reflect the proportionality principle, taking into consideration the risk nature, scale and complexity of the activities of European credit institutions”, said ESBG Managing Director, Peter Simon.

This would allow financial institutions to carry out their activities under a non-detrimental regulatory framework which strengthens the European banking sector – the backbone of the EU’s ‘real economy’. A disproportionate regulatory weight also would negatively impact banks, which would be overburdened with regulatory requirements that could even push resources away from customer service.

The EU banking sector’s diversity ensures that a full range of services is offered to customers at competitive prices, in particular by banks that focus on SMEs, households and local communities.

In this context, ESBG is looking forward to bringing the voice of its members to the upcoming legislative process. We believe that close cooperation among all stakeholders will be indispensable for the successful implementation of the finalised Basel III standards. We encourage the EU decision-makers to make full use of the discretions envisaged in the Basel III text, including those on operational risk, which will be crucial for continuous and solid credit provisions to the real economy after the implementation phase.