Carthy: EU misses opportunity to rein in dangerous banking practices
Sinn Féin MEP for Midlands North West Matt Carthy has welcomed the agreement between the EU institutions to impose tougher new capital requirements on systemically important EU banks. However, he said the measures are largely superficial and will do little to actually reduce the likelihood of further taxpayer-funded bailouts being implemented in the future.
Addressing MEPs in the plenary session of the European Parliament this evening, Monday, in Strasbourg, Carthy said: “I welcome many of the important developments in the capital requirements package, such as the introduction of binding minimum capital requirements banks must hold in future; new anti-money laundering provisions; and restrictions on pay and dividends for breaches of the capital requirements.
“The introduction of binding TLAC requirements (total loss absorbing capacity) at EU level is being hailed by some as a sufficient solution to solve the problem of too-big-to-fail banks. But I don’t believe this is possible without Bank Structural Reform and a larger, binding leverage ratio. The Bank Recovery and Resolution Directive has already been proven to be ineffective at preventing taxpayer-funded bailouts.
“I support the view of many leading economists that a leverage ratio is a far superior measurement of a bank’s position than its risk-weighted assets. While there has been some progress in reducing the massive variability in measuring risk-weighted assets, they remains a subjective and totally unreliable indicator. A leverage ratio also an easier measure for banks to use and regulators to monitor.
“So I fully support of making the leverage ratio a binding Pillar 1 requirement – but it needs to be higher than 3 per cent, particularly for systemically important banks.
“From the beginning of the process of negotiating this package, I have expressed serious concerns over the capital leverage ratio being set at just 3 per cent. Let’s not forget that the OECD and US Federal Deposit Insurance Corporation recommend a leverage ratio of at least 5 per cent for institutions that are systemically important. We are allowing EU banks’ desire to compete with their American counterparts to put financial stability at risk.
“Finally, we will never be able to separate the too-big-to-fail problem from Bank Structural Reform, which was withdrawn in 2017 due to opposition from conservatives and the finance lobby. The most effective way to achieve the objective of risk reduction is to separate retail from investment banking. The fact that a decade after the financial crisis legislators have failed to achieve this is an absolute indictment of all of the EU institutions, and a total failure to meet the expectations European citizens have placed in us.” ENDS