EU executive seeks to ease regulatory burden on small banks

LONDON (Reuters) - The European Union will propose changing the bloc’s rules on bank capital requirements to ease the burden on smaller lenders in a bid to boost growth, EU financial services chief Jonathan Hill said on Thursday.

The famous euro sign landmark is pictured outside the former headquarters of the European Central Bank (ECB) in Frankfurt, Germany, July 17, 2015. REUTERS/Kai Pfaffenbach

In a speech in Amsterdam where EU finance ministers are meeting, Hill said he wants to lighten reporting and disclosure requirements for smaller banks.

“I also want to see whether the intricate calculations banks have to do to comply with prudential rules could be simplified. And whether there is a case for small banks with limited trading activities to be exempt from capital requirements for trading book exposures,” Hill said.

Hill’s speech underscored the willingness of the EU to deviate from globally-agreed capital norms to encourage more banks to lend more.

Such moves towards more “proportional” rules for smaller lenders have been long-called for by industry and supported by governments in large banking centers such as Germany and Britain.

Hill is a member of the EU’s executive European Commission, which has the power to propose changes to the bloc’s laws. Reforms such as bank capital and derivatives rules introduced after the 2007-09 financial crisis are up for review.

Hill said he would keep the list of banks who are exempt from the bloc’s capital rules, and speed up future applications for exemptions, especially from credit unions, though the Bank of England has proposed forcing bigger unions to hold more capital.

The so-called “SME supporting factor” or lower capital charges on certain loans to small businesses will also be maintained, even though the bloc’s European Banking Authority said last month that it has not led to more lending.

Hill added that he would go a step further and examine whether to raise the threshold so that more SME loans could qualify for reduced capital charges.

Smaller companies have complained that expensive new capital charges on derivatives contracts they use to hedge risks are stopping banks from offering them clearing services.

Hill said the EU would propose simplifying these capital requirements without jeopardizing financial stability.

A public consultation will be launched in May to identify the main barriers to funds from operating across the EU as they often face extra local rules, fees and other requirements for marketing material in what is meant to be a single market.

Editing by Jeremy Gaunt