A consequence to the global financial crisis in 2008 is the strengthening and deepening of the banking regulatory and supervisory framework in the member states of the European Union (EU). This implies that banks and investment firms have to comply with a set of binding legal provisions such as the Capital Requirements Regulation and Directive IV (CRR/ CRD IV), Bank Recovery and Resolution Directive (BRRD) and the Deposit Guarantee Scheme Directive (DGSD) in order to cover any possible risks inherent to their business activities. More specifically, for banks in EU-countries sharing the common currency euro, a Banking Union is in place which builds up on these provisions and regulatory frameworks but extends them with a Single Supervisory Mechanism (SSM) and a Single Resolution Mechanism (SRM) in order to ensure a level playing field for banks in the euro-area. The SSM and the SRM are up and running since late 2014 and early 2016 respectively. Parallel to that, a Single Resolution Fund (SRF) is built up which shall be applied for bank resolutions avoiding the use of public money and bail-outs as happened during the global financial crisis. 

More recently, the European Commission adopted a legislative proposal on the introduction of a European Deposit Insurance Scheme (EDIS) and presented a related communication with the title “Towards the Completion of the Banking Union”. Therein, the Commission noted that apart from the introduction of EDIS as a third pillar of the Banking Union along with SSM and SRM also measures for further risk reduction need to be taken. Apart from that, the Commission is working on the implementation of several revised standards of the Basel Committee on Banking Supervision (BCBS). Most of these issues such as EDIS however are still not finalised and constitute contentious issues between EU member states in the completion of the Banking Union.

While the legal provisions already in force and the upcoming regulatory initiatives contribute to a safer and more stable EU banking sector, they barely differentiate between the various bank business models prevalent in the EU. From the public sector banks’ perspective, a more proportional approach to banking regulation which takes risk profiles and bank business models stronger into account needs to be introduced. This would be particularly relevant for promotional banks and their exceptionally low-risk promotional business of financing public policy objectives. In example, undifferentiated regulatory frameworks may imply less credit availability for recipients of promotional funding such as municipalities, social housing projects and healthcare sectors or may trigger less attractive credit conditions for small- and middle-sized enterprises (SME) and infrastructure projects. This would result in a weakening of economic and social welfare and create unintended consequences for the real economy. In order to avoid such unintended consequences, the EU regulatory framework has to acknowledge that promotional banks are at the heart of well-functioning markets. Their countercyclical role as lender of last resort was proven during the times of the global financial crisis and has to be strengthened with appropriate regulatory measures instead of weakened with inadequate provisions.


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