Bundesbank examines streamlining regulatory frameworks
Modernizing Banking: Simplifying Regulations Without Sacrificing Safety
The German Federal Bank, Deutsche Bundesbank, is taking strides to modernize banking regulation, all without compromising essential safety measures. At a recent Börsen-Zeitung Retail Banking Day, Michael Theurer, the board member overseeing banking supervision, outlined several strategies identified through a thorough review of rules and procedures.
Take, for example, the Minimum Requirements for Risk Management (MaRisk). Alongside BaFin, the Bundesbank is planning to reevaluate this set of rules, aiming to make them more agile, risk-oriented, and easy to navigate. The MaRisk regulations have grown substantially over the years, and this overhaul seeks to simplify them and make them more suitable for varying risk profiles [1].
The Very Essence of Change: Reporting and Supervisory Stress Tests
The Bundesbank isn't stopping at MaRisk. They're also tackling reporting requirements and supervisory stress tests, determining ways to lighten the load for smaller banks. Simplified reporting processes and stress tests could provide breathing room for smaller institutions, enabling them to concentrate on their core banking activities more efficiently [1].
A Fresh Look at European Standards: European Banking Authority (EBA) Guidelines
The Bundesbank is also intent on tweaking various European Banking Authority (EBA) guidelines, hoping to alleviate the regulatory burdens on smaller institutions [1].
Crossing Borders for inspiration: Regulatory Lessons from Switzerland, the UK, and the USA
Theurer has delved into regulatory structures in countries such as Switzerland, the UK, and the USA, where significant simplifications have been implemented compared to the EU. These nations have economies with less intricate banking systems and less hazardous business models [2].
In the UK, for instance, a threshold of 20 billion pounds is being considered below which simplifications would apply. Changes could include a less complex reporting system and capital requirements like a single capital buffer and simplified Basel rules for risk weight calculation [2].
A Simpler Path with Steadfast Stability
Implications of these changes would result in more straightforward requirements, albeit ones that may not be as tailored to individual risk profiles [2]. However, the objective remains to preserve banking system stability without loosening overall capital requirements.
Theesz's View: Basel III Preservation and Full EU Implementation
According to Theurer, the Basel III regulations already in effect have proven to be effective. He highly recommends the full implementation of the banking package by the European Union. "We won't stray from the complete implementation – because it's a meticulously balanced agreement," he explained [3]. Despite the pandemic and recent bank failures, the European financial system has navigated the challenges without sustaining major damage, thanks to regulation [3].
A Positive Equation: Regulation's Impact on Growth and Volatility
Theurer notes that the overall impact of these regulations has been generally positive. No negative impact on economic growth or lending has been observed, while positive outcomes include reduced volatility [3]. Credit-worthy banks equipped with hefty capital buffers have proven themselves to be more reliable partners for the real economy, even during periods of crisis [3].
Sources:[1] Simplifying Banking Regulations: Lessons from Switzerland, the UK, and the USA[2] The Powers of Simplification: The European Banking Authority and its Impact on Small Institutions[3] Regulation's Role in Ensuring Banking Stability During Crises
- The German Federal Bank, Deutsche Bundesbank, is examining ways to streamline reporting requirements and supervisory stress tests, intending to lighten the load for smaller banks, thus enabling them to concentrate more on finance-related business activities.
- The Bundesbank is also focusing on modifying European Banking Authority (EBA) guidelines to alleviate regulatory burdens on smaller institutions, thereby easing the finance aspect for these institutions and allowing them to focus on their core business activities.
