On 21 November 2019, the European Central Bank (ECB) published a speech given by Andrea Enria, Chair of the Supervisory Board of the ECB, at the European Savings and Retail Banking Group Conference, “Creating sustainable financial structures by putting citizens first” focusing on banking reforms, the case for a proportionate approach to regulation and sustainable finance.
Mr Enria acknowledges the lengthy implementation process of the Basel III reforms and that there is not a consensus for all parts of Basel III, however, he argues that it is the best compromise that can be found and represents a global effort to ensure that the sector is covered by global standards and rules. Mr Enria contends that Basel III offers more stability at a fair price although some banks, in particular smaller banks, tend to claim that new regulation places a disproportionate burden on them.
The next part of his speech looks into this claim in more detail. In the European Union, Basel III applies to all banks, regardless of size or cross-border activity. However, the ECB argues that the implementation of Basel III is proportionate as the latest revisions of EU banking law ensures that smaller and non-complex banks will have to deal with less stringent requirements for reporting, disclosure and remuneration. Mr Enria states that the ECB takes a proportionate approach in its supervision of banks as smaller banks have to report fewer data points in comparison to large banks and pay less supervisory fees, whereas large and complex banks face intense supervision in their day-to-day business where the ECB directly supervises those banks.
Mr Enria’s final point on sustainable finance recognises that the role of bank regulators and supervisors is limited. Their mandate is to make banks safe and sound. However, if climate change leads to particular risks for banks, the ECB has a duty to take this into account. This may include a risk assessment on the treatment of exposures to green and brown assets. Nevertheless, anything further would go beyond the ECB’s mandate.