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. 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 (CRR II/ CRD IV) implemented in the EU according to the globally agreed standards at the Basel Committee for Banking Supervision (BCBS), 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.

The EAPB supports the overarching objectives pursued by the BCBS in its finalisation of the Basel III framework. We expressly support the BCBS’s goal to not significantly increase overall capital requirements with the final reforms. That said, the implementation of the reforms in the EU would place considerable burden to the business of European promotional banks if the specific low-risk business model of promotional banks that fund primarily the public sector and SMEs were not taken into account. 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. The definition of promotional banks in the CRR offers an opportunity to create a regulatory framework for promotional banks that allows for adjustments to the Basel standard where the application of the rule would lead to a significant burden on the promotional business and thus counteract the public mandate. The EAPB calls on policymakers to take the specific business model of promotional banks as well as the impact of the COVID-19 crisis into account in the ongoing implementation of the final Basel package. Most importantly, the implementation of the output floor should not go beyond the capital requirements in the Basel framework and thus avoid gold-plating. Furthermore, public banks should receive favourable treatment when it comes to the implementation of the output floor, promotional loans passed through other lenders, exposures to unrated banks and corporates, regulatory treatment of equity exposures, the revised credit valuation adjustment risk, etc.

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