BRUSSELS (Reuters) - The election of Donald Trump as U.S. president has increased uncertainty in the banking sector and watering down capital requirements would only make the situation more volatile, the EU’s finance chief said on Tuesday.
European Commission Vice-President Valdis Dombrovskis said Trump’s election victory had compounded global uncertainty already heightened by Britain’s vote to leave the European Union and subdued world growth.
“This environment makes the need for predictable, level-headed policy more important than ever,” Dombrovskis told a conference.
Trump said during his election campaign he would row back on Dodd Frank, a sweeping reform of Wall Street banks that applies tougher capital rules agreed at the global level following the 2007-09 financial crisis.
“Some might be tempted to reverse the reforms we undertook during the crisis, to lower requirements, and give up on following international standards and the single rulebook,” Dombrovskis said.
“But this would just create more uncertainty and instability.”
Dombrovskis is due to publish a draft law next week amending EU bank capital rules, such as easing the reporting burden on smaller lenders and encouraging more investment in infrastructure and lending to companies.
He signaled that the draft law would answer a long-standing call from smaller lenders, especially savings banks in Germany.
“Where we can, we will reduce the administrative burden linked to some rules in the area of remuneration,” Dombrovskis said.
He is not expected to scrap an EU rule which caps a bonus at no more than a banker’s fixed pay, or twice that amount with shareholder approval.
But the draft law will end a requirement on small lenders to defer part of a bonus, and pay the deferred element in the bank’s shares. Many small lenders are not listed, and pay modest bonuses, thereby creating an administrative headache.
“A targeted amendment is therefore proposed to cater for the problems encountered in the application of the rules on deferral and pay-out in instruments in small and non-complex institutions and toward staff members with low variable remuneration,” said the draft law, which has been seen by Reuters.
Each trading desk at a bank must have a clear, annual business plan, including, “remuneration policy based on sound criteria used for performance”, the draft says.
There will also be adjustments to the bloc’s bank capital rules to avoid penalizing market-making banks that are ready to buy and sell stocks and bonds at any time, as they are seen as essential for a well-functioning markets.
Dombrovskis said problems in Europe’s banking sector - low profitability is cited by policymakers among the top ones - must be tackled head on as parts of the sector do not have the scale or expertise to make technological changes.
He will also propose a separate law in the coming weeks for restructuring company debt to give struggling companies a “second chance”.
Editing by David Clarke