A new set of amendments to the Basel III capital framework introduced by the oversight body of the Basel Committee on Banking Supervision could affect the lending of co-operative banks.
The European Association of Cooperative Banks (EACB) warns that the new rules could also cause “serious distortions” of competition.
The trade body, which represents co-operative banks from across Europe, welcomed the European Commission’s intention to submit the new framework to a thorough and detailed impact assessment and consultation by stakeholders.
It says the Commission needs to check that these amendments will not have an undue impact on the financing of the European economy, growth and jobs, respect the diversity of business models (loan to income), and that it will not give a competitive advantage to other jurisdictions.
“Europe’s co-operative banks are well capitalised and stable, and banks will be able to cope with the revised Basel III standards,” said Gerhard Hofmann, president of the EACB.
“However, we cannot exclude that the new rules will affect the lending of co-operative banks to the economy especially as a consequence of reduced risk sensitivity due to the output floors.”
The EACB also highlighted the danger of “serious distortions of competition” if the Basel III framework including more restrictive rules on the trading book were not implemented in all major jurisdictions in the world.
Co-operative banks have 58.000 outlets and serve 209 million customers across the EU.
In November 2017 the association also released a policy paper with views and suggestions on possible regulatory and supervisory changes and incentives. It also warned that while sustainable financing was in the nature of co-operative banks, the European Commission’s and the international initiatives were “too often too focused on the capital and asset management side”.
The impact of regulation on sustainable finance was also discussed during a lunch debate hosted by the EACB on 30 November at the European Parliament. Hosted by MEP Sirpa Pietikäinen, the discussion took place in the context of the forthcoming report of the High Level Expert Group on Sustainable Finance (HLEGSF) and the announced EU Commission’s Action Plan (Q1 2018).
“We believe that a greater emphasis shall be put on the retail side of sustainable financing by providing a series of tools and policies that are conducive of green growth in the regions via SMEs, households and local actors,” said Etienne Pflimlin, chairman of the EACB Task Force on Sustainable Finance.
“This should be a priority in the final recommendations of the HLEGSF and in the further steps of the European Institutions. Co-operative banks shall be closely involved.”
Ms Sirpa Pietikäinen, MEP, rapporteur circular economy and former Finnish minister of environment, added: “Sustainable finance initiatives are crucial for the long-term growth and competitiveness of the EU.
“Resource scarcity and environmental risks should be incorporated in financial legislation inter alia concerning credit ratings, capital requirements, insurances, financial product information, accounting and auditing.
“Capital markets can also be reoriented towards long-term sustainability through the integration of environmental factors. These are aspects that I look forward to emphasising as the Parliament, beginning with the ECON Committee, starts its deliberations on the Capital Requirements Directive. Co-operative banks, with their local focus, play an important role in this and we must preserve it, for example with proportionality. I look forward to continuing this discussion with EACB.”