By Huw Jones
LONDON (Reuters) – Banks in the European Union could increase lending by almost a third if regulators applied capital requirements in the same way as their U.S. counterparts, a study from the European Banking Federation and consultants Oliver Wyman said on Friday.
Banking regulation is internationally coordinated by regulators, but differences remain in how the rules work in practice, and how they are implemented, the report said.
“A review of the current capital requirements and supervisory processes could free up capacity for approximately 4-4.5 trillion euros of additional lending in a best-case scenario, representing an increase of almost 30% compared to current bank lending volumes,” the report said.
GRAPHIC – EBF Graphic 2
https://fingfx.thomsonreuters.com/gfx/mkt/klpygzadypg/EBF%20Graphic%202.PNG
The report said the difference in regulatory-induced costs at EU banks compared with their U.S. peers can explain 0.8-1.0 percentage points of a gap in return on equity, which is a measure of profitability.
“Policymakers should redouble their efforts to complete the banking and capital markets unions,” the report said, referring to EU projects to deepen its capital market and create a more competitive cross-border banking market.
“For their part, banks should sustain their focus on improving operational efficiency and digitisation. They should position themselves for a long-expected process of consolidation in the euro zone that will also foster better allocation of resources across EU borders.”
Banks now hold more capital after being bailed out by taxpayers in the 2008 financial crisis.
The EU is finalising the remaining leg of global bank capital rules that were written in response to the financial crisis, with temporary waivers from some elements.
GRAPHIC – EBF Graphic 1
https://fingfx.thomsonreuters.com/gfx/mkt/dwvkdaxewpm/EBF%20Graphic%201.PNG
($1 = 0.9215 euros)
(Reporting by Huw Jones. Editing by Jane Merriman)
