ECON Committee meeting in Starasburg on 7.7.2011 gave MEPs the chance to hear the authors of the report and ask them questions. Below are links to the Presentation provided by the authors and the report of the Study.
The iff together with its Research director Prof Neuberger and her team from Rostock University and Mr Rissi from the Institut für Finanzdienstleistungen Zug (IFZ) in Switzerland have delivered a report to the ECON committee of the European Parliament which confirm the net benefits of the planned higher capital requirements, and introduction of both new liquidity standards and a simple leverage ratio. Based on existing calibration of the parameters, minimum capital ratios and implementation timeframe given to EU banks to adjust to these new rules and measures, the study finds that these reforms to the EU’s banking regulation will contribute to greater financial stability and resilience to future shocks. The following points came through the exchanges between the authors and the MEPs of the Economic and Monetary Affairs Committee on Thursday morning:
- Prudential supervision of banks (individually as well as from a macroprudential perspective as a result of the new measures of the CRD IV addressing systemic risk for the first time) is only one form of regulation and supervision and cannot replace the necessity for regulation at the product development and servcing level and stages;
- The CRD IV (and Basel III) may insufficiently target the asset side of the bank balance sheet (the investment portfolio of financial investments and loans) as the envisaged rules concentrate almost exclusively on indirectly affecting portfolio quality by forcing or incentivising changes to bank liabilities;
- The uncertainty of how banks will react to the new requirements (e.g. the extent of the adjustment in expectations of investors and owners of banks with regard to returns) could potentially include an undesired increase in more risky behaviour by some of the banks;
- To what extent will these bank capital and liquidity rules lead to growth of the shadow banking sector, and what further rules on these or other markets and players are still necessary to establish the confidence which is key to a sustainable future for EU banking and thus the real economy.
A further study by the ECON Committee is being carried out which will weigh the impact of the CRD IV measures relative to the many other banking reform initiatives that the ambitious European Institutions have launched in past years so far. This cumulative impact assessment study should confirm the stand-alone necessity and value of the CRD IV measures for Europe and the global financial system. Below the Abstract of the Analytical Study and link to the report itself:
Impact Assessment of the Different Measures within the Capital Requirements Directive IV
Abstract:
The three main pillars of the new regulatory framework for banks are: capital, leverage and liquidity requirements. The assessment of the Capital Requirements Directive IV measures shows that there is a sound chance of increasing stability of the banking sector resulting in net benefits for the overall economy. Nevertheless, these findings are surrounded by a high degree of uncertainty in connection with the actual behaviour of the involved market participants. Empirical evidence for the EU shows that the links between the proposed restrictions and the portfolio choice of banks are weak. The quantitative analyses indicate that in the short run financing costs of banks will increase by 0.06% per additional percentage point of regulatory capital requirements. The impact of liquidity requirements will be in the range of 0.05% per percentage point. The growth impact in the short run is estimated to be -0.18% for capital and -0.15% for liquidity requirements (per percentage point). In the long run the impact will be close to zero. Capital regulation beyond 13% capital requirements and above 5% additional liquidity are associated with excessive macroeconomic cost unlikely to be recovered from gains from increased economic stability.
Rissi, R., Neuberger, D., Clerc-Renaud, S., Reifner, U., ‘Impact Assessment of the Different Measures within the Capital Requirements Directive IV’, Institut für Finanzdienstleistungen e.V. (iff), European Parliament’s Economic and Monetary Affairs Committee, Commissioned Report IP/A/ECON/FWC/2010-109, Hamburg 2011.
The study is comprised of 115 pages, published on 29.06.2011, available below or from the European Parliament website under: http://www.europarl.europa.eu/studies (then searching under “Economic and monetary affairs”). |
