The German Federal Financial Supervisory authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) and the German Central Bank (Deutsche Bundesbank) are currently working on a draft proposal for the so-called “Small Banking Box” regulation. The aim of the “Small Banking Box” is to specify the principle of proportionality in banking regulation. The new proposal suggests that small and mid-cap banks shall not be subject to the same strict rules as significant banks. For example, there will be less restrictions on reporting obligations and disclosure requirements.

The threshold for being classified as “small bank” is subject to ongoing discussions. While some of the proponents of a “Small Banking Box” regulation suggest that banks with a market capitalisation somewhere around a low single digit billion Euro should qualify as small banks. Others, hold that a threshold below 30 billion Euros should be sufficient. The 30 billion threshold, they argue, would be coherent with the threshold for the European Central Bank supervision. In addition to the financial threshold, the risk profile shall be equally decisive for the question whether a small bank qualifies for “Small Banking Box” regulation or not. In this context, it is proposed that only small banks which are subject to insolvency proceedings (in the event of a bank resolution) and a lack of significant capital markets and cross-border activities should benefit from “lighter” regulatory rules. Furthermore, it shall be required that these banks have a rather small derivatives portfolio.

The bank associations in Germany are also working on their positions regarding a “Small Banking Box” regulation. It is expected that more details will follow soon.