Monday, October 11, 2021

ECB concerned about the branch system
Brussels is cracking down on non-EU banks

The EU Commission wants to gain more control over weakly regulated banks and force corporations to convert their branches into subsidiaries. This requirement could be expensive for some banks and, according to bank lobbyists, even lead to retaliatory actions.

The EU Commission wants to more strictly regulate the branches of banks whose parent company is based outside the EU. As the “Financial Times” reports, citing insiders, the commission is working on a plan to force corporations to convert their branches into subsidiaries if their activities are large and risky enough.

According to the “Financial Times”, the Commission wants to gain more control over weakly regulated banks, whose number is increasing rapidly as a result of Brexit. The European Central Bank (ECB) was concerned that the branch system would allow some foreign banks to bypass the ECB’s supervision. The EU project could prove expensive for these banks because subsidiaries have to have more capital and liquidity than branches.

According to the Financial Times, Brussels officials believe this would bring the EU closer to the long-standing practice in the United States and Britain. Bank lobbyists warn, however, that retaliatory actions by other countries could occur. According to the “Financial Times”, the project is still being debated in the Commission and will become part of the legislative package that the EU intends to pass to implement the Basel 3 capital adequacy directive.

According to the Financial Times, a senior executive at a major US bank is “concerned that he will be caught off guard and become collateral damage by a proposal directed at the black sheep.” A senior executive at another bank said that while your bank’s branches are unlikely to become subsidiaries, it could change the way the bank operates as you need to be prepared for the possibility.