Competitiveness of the banking sector

However, the Commission's communication has so far only shown problem areas and possible courses of action in a very general way, but refrains from developing concrete solutions. Almost two years after the Draghi Report, this does not do justice to the urgency of the need for reform in the excessive banking regulation and the dynamics of the related developments in other jurisdictions.

It is also incomprehensible that the EU Commission is devoting itself very intensively to the topic of possible consolidation in the European banking market, while the issue of capital relief continues to be addressed only subordinately. In doing so, it ignores developments in other regions of the world, especially in the USA, and knowingly ignores the negative correlation between capital level/level and banks' ability to lend.

"The EU Commission has not yet given sufficient weight to the issue of the continuing increase in equity burdens in Europe and thus ignores developments in other regions of the world. This does not sufficiently strengthen the lending potential of European banks,"
comments Jens Tolckmitt, Chief Executive Officer of the vdp.

The European banks are not demanding massive capital relief, as is now being granted to US institutions. The stability achieved by the reforms to date – including Basel III in particular – should not be called into question. However, if the European banking sector is already stable and well capitalised today – explicitly also from the point of view of supervisors and regulators – the further sharp increase in capital burdens expected in the coming years must be consistently stopped.

For the banks affected by the output floor in Germany, the regulation that has already been adopted means a further increase in equity of around 20% from now until 2032. This is not appropriate. A conceivable, minimally invasive solution is to permanently fix the output floor at its entry level of 50%.

This would prevent capital growth in "autopilot mode", really strengthen the performance of European banks and at the same time not impair financial stability. In addition, the output floor would finally become what it was actually intended for at the beginning: a backstop for capital backing – instead of an all-determining control variable.

The need for adjustment in the treatment of capital adequacy requirements for residential real estate loans and unrated corporate loans seems to have been recognized in principle by now. A continuation of the regulatory privilege, which has so far been granted for a limited period, is therefore appropriate and also urgently necessary. At the same time, a comparable treatment of certain commercial real estate financings, which can demonstrate identically low default rates in the context of hard tests, would also be necessary.

The prohibitive capital backing of ADC financing should also be taken into account (Acquisition, Development and Construction – the typical form of financing for new construction and renovation of real estate). It is a glaring design flaw in the European implementation of Basel III. This is because the current treatment with a risk weight equivalent to that of a defaulted loan is not only inappropriate, it is also diametrically opposed to the European political goals of creating housing and the sustainable transformation of the building stock.

The vdp expects that the Commission's analyses will now be quickly followed by concrete legislative proposals that will actually strengthen competitiveness. What is needed is an adjustment that makes banking regulation appropriate and risk-appropriate, maintains the security standard achieved and at the same time focuses on the competitiveness and – even more importantly – the performance of the banking industry for the real economy.

"The direction is right. However, the general analyses must now be quickly followed by concrete measures that actually noticeably improve the competitiveness of the banking industry,"
demands Jens Tolckmitt, Managing Director of the vdp.

"A competitive European banking market needs a regulatory framework that is risk-sensitive and simple. This is the only way that credit institutions can fulfil their central task: financing investments, housing construction and sustainable transformation," says Tolckmitt.