- Regulators and officials across the European Union have been nervous about potential contagion in their banking sectors following the recent turmoil in the United States.
- However, they believe that the US should learn from some of the regulatory work being done in the euro area.
- Basel III is a reform package that strengthens bank supervision and risk management and has been in development since 2008.
- It applies to most European banks, but American lenders with total assets under $250 billion don’t have to follow it.
Chair of the ECB’s Supervisory Board Andrea Enria and Chair of the European Banking Authority (EBA) Jose Manuel Campa in the European Parliament on 21 March 2023.
Thierry Monasse | News from Getty Images | Getty Images
US regulators made mistakes by failing to prevent the collapse of Silicon Valley Bank and other financial institutions, according to lawmakers in the European Union, who believe this is also a moment for some self-assessment in Europe.
Silvergate Capital, a cryptocurrency-focused bank, was the first to fall, saying on March 8 it would cease operations. Shortly thereafter, Silicon Valley Bank failed after a rush for deposits. Signature Bank, which focused on lending to real estate companies, then experienced deposit outflows that prompted regulators to seize the bank to prevent contagion to the entire sector.
Since then, First Republic Bank has also received support from other banks amid fears of a major shock to the financial system. And in Switzerland, a non-member of the European Union, authorities had to bail out Credit Suisse by asking UBS to step in with a takeover.
Meanwhile, regulators and officials across the European Union were nervous about possible contagion in their own banking sector. After all, it wasn’t all that long ago that European banks were mired in the depths of the global financial crisis.
“There is no direct transmission of US events [the] significant banks in the euro area,” Andrea Enria, chair of the European Central Bank’s supervisory board, said on Tuesday. Like him, a number of officials have sought to emphasize that the European banking system is much better off than it was in 2008.
The US lacks some controls.
Paul Tang
Legislators in the European Parliament
This reinforces the view in the EU that the US should learn from some of the regulatory work done in the eurozone since the financial crisis.
“They need more regulation … in that sense the US lacks some controls,” Paul Tang, a lawmaker and member of the European Parliament’s Economic Affairs Committee, told CNBC.
Asked if US regulators made some mistakes in preventing the recent banking turmoil, he said: “I definitely think you need to look into that closely. That was the message of 2008.”
At the heart of European policy-making in Brussels, an official who asked not to be named due to the politically sensitive nature of the issue told CNBC that several meetings between EU officials in recent days “emphasized the failure of regulation [in the U.S.] especially compared to the EU.”
One of the main differences is that the US has looser capital requirements for smaller banks.
“The main difference is the Basel III requirements,” MEP Stéphanie Yon-Courtin told CNBC. “These banking rules,” she said, “apply to very few banks — that’s the problem.”
Basel III is a reform package that strengthens bank supervision and risk management and has been in development since 2008.
It applies to most European banks, but American lenders with total assets under $250 billion don’t have to follow it.
Despite some criticism of US regulators, the EU recognizes that this is not the time to be complacent. “We have to remain vigilant,” said Yon-Courtin. “We have to be careful and make sure these rules are still fit for purpose,” she added, urging constant monitoring of the rulebook.
Indeed, one of the main discussions in the EU in recent days has been the need to improve the European Banking Union – a set of laws introduced in 2014 to make European banks more resilient.
The debate was politically sensitive, but the reality that high interest rates are here to stay made it even more relevant.
“We are well aware that the continued rapid normalization of monetary policy conditions increases our banks’ interest rate risk,” Enria, chair of the ECB’s supervisory board, said on Tuesday.