Regulation needs recalibrating - Editor's Blog -

Overburdening small banks and preventing lending to SMEs are two unintended consequences of the regulatory onslaught since the financial crisis, writes Brian Caplen.

It isn’t only in Donald Trump’s US that bank regulation is being reconsidered. Slowly there is the realisation that if the banking sector is to remain entrepreneurial and if the pipeline of finance to SMEs is not to dry up, parts of the current regime will need to be modified. 

In the US, the main thrust of reform has been to remove smaller banks from some parts of the Dodd-Frank Act and make compliance easier. While this has attracted criticism on both sides of the Atlantic – US senator Elizabeth Warren said it risked unleashing another crash – the same sort of thinking is going on in Europe. 

The European Commission has asked the European Banking Authority to build a special tool to help smaller banks, which use the standardised model under Basel, with their reporting requirements. Gonzalo Gasos, head of banking supervision at the European Banking Federation, was quoted in The Banker’s sister publication Global Risk Regulator as saying: “Proportionality is up for discussion in [the European] Parliament; there are proposals to reduce the burden of reporting requirements which are broadly agreed, and others to exempt smaller banks with smaller, less complex trading books.”

But there is still work to be done and some regulations are working in opposing directions. While one of the aims of the EU's Capital Markets Union is to make it easier for SMEs to access capital markets through less onerous disclosure, through MiFID II research on SMEs is under threat because the new charging structure focuses brokers and investors attention on big cap stocks. 

We have seen a decade of bank regulation since the financial crisis and banks are definitely safer and better run as a result. Hopefully the fine-tuning that is now needed can be done somewhat quicker.

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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