Central plank of reform limits ability of national regulators to require banks to hold extra capital on top of EU-wide rules
Central plank of reform limits ability of national regulators to require banks to hold extra capital on top of EU-wide rules The European Commission is set to publish an eagerly-anticipated banking strategy on Friday.
Photograph: Zoe Head-Thomas/PA Drafts of the European Commission’s eagerly-anticipated proposed package to make EU banks more competitive have been doing the rounds ahead of its launch on Friday. One of the central proposals appears to be to limit the ability of national regulators to require banks to hold extra capital on top of EU-wide rules because of concerns about their leverage ratio.
The leverage ratio is a measure of how much capital a bank holds compared with the size of its overall balance sheet. The minimum requirement is that banks hold the equivalent of at least 3 per cent of their total assets by way of capital reserves that can absorb shock losses.
The Financial Times said on Tuesday that European bank executives complain the leverage ratio was meant to be a backstop to the separate risk-based capital rules but has increasingly become the main constraint for some of them. Meet the men who wanted to build gyms but ended up creating software to run themIrish bank executives, however, are an exception. The reason is that they are more affected by other capital rules, which are based on how risky their loans are.
Since the financial crisis, Irish mortgages and other loans have been viewed as riskier than the EU average. The higher so-called risk weightings mean that Irish banks already have to hold more capital relative to total assets than your typical retail bank on the Continent.
“For the Irish banks, we see limited impact because AIB, Bank of Ireland and PTSB already operate with strong 2025 leverage ratios and relatively high density,” said Denis McGoldrick, an analyst with Goodbody stockbrokers. The three Irish banks had leverage ratios of between 6.5 per cent and 6.9 per cent at the end of last year, more than double the minimum required.
What eventually emerges from this still-vague proposal, after it goes to finance ministers from EU states and the European Parliament or negotiations, remains to be seen. Recruitment blunder ‘seemed avoidable’ and likely to damage reputation, Publicjobs saysCircle K Ireland appoints Paul Dixon as managing directorAer Lingus to cut up to 500 jobs and drop routes out of DublinRecruitment blunder ‘seemed avoidable’ and likely to damage reputation, Publicjobs saysTrump is falling into the old trap of an American ‘forever war’
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