The European Commission has published the speech given by Jonathan Hill (Commissioner for Financial Stability, Financial Services and Capital Markets Union) at the CRR Review Conference.

In his speech Commissioner Hill states that there is “no doubt” that the Capital Requirements Directive IV (CRD IV) and the Capital Requirements Regulation (CRR) (together the CRD IV package) have made the EU financial system stronger. Last year’s Comprehensive Assessment confirmed that EU banks are now more resilient and better capitalised by over 200 billion euros. EU banks’ capital ratios now stand at 12%, a similar level to the United States.

Commissioner Hill then discusses some of the feedback that the Commission has received to its consultation reviewing the CRD IV package. In particular:

  • the consultation responses are divided as to whether the lower capital requirements for bank lending to SMEs is translating into more lending to businesses. At the moment, the numbers do not show a significant increase in bank lending to SMEs since the legislation came into force, but suggests it has remained stable. In light of this the Commission has asked the European Banking Authority to bring forward their report on the impact of lower capital requirements on bank lending to SMEs and the risk weightings of SME loans. This analysis will feed into the Commission’s review;
  • some respondents have argued that the impact of the CRD IV package has been to reduce the number of long term investment and infrastructure projects that banks might otherwise have backed. Some have argued that lower capital requirements, like those applied to SME lending, and a better recognition of lower risk levels associated with infrastructure projects, could play a part in improving long term investment;
  • some respondents have raised the issue that the net stable funding ratio and the leverage ratio requirements could weigh on longer term, lower risk loans; and
  • many respondents have called on the CRD IV package to differentiate better between institutions to avoid disproportionate compliance costs. Small and medium sized banks feel particularly strongly about this.

The Commission will complete its review of the CRD IV package in 2016.

View Speech by Commissioner Jonathan Hill at the CRR Review Conference, 14 December 2015