Daily Management Review

Wall Street Lenders could be Hit by New Plans for Bank Reform in Europe


Wall Street Lenders could be Hit by New Plans for Bank Reform in Europe
The balance sheets of banks, that are already facing a challenging environment of low interest rates, could potentially come under pressure as the European Commission has unveiled a new set of proposals aimed at banks operating in the European Union (EU).
The implementation of a caveat that is designed to deal with the "too-big-to-fail" problem at an international level is the key aspect of the proposed reforms which were released on Wednesday. This part of the proposals is expected to tackle risks linked to globally and systemically important banks and is known as the total loss-absorbing capacity (TLAC).
In order to safeguard financial stability and public funds, it would require banks to hold sufficient amounts of readily liquid capital. Wall Street banks as well as other non-EU banks which have operations in the region could be affected by this rule.
Up to 13 banking groups would have to comply with the TLAC standard in the EU, said European Commission Vice President Valdis Dombrovskis in a speech earlier this month. U.S. banks that top the list of Globally Systemically Important Banks (G-SIBs) would have a big impact because of this. At the top of global regulators' list of systemically important banks replacing HSBC are Citi joined JP Morgan. To help preserve financial stability, 16 percent of risk-weighted assets (RWAs) from 2019 will have to be held by these U.S. banks operating in the region, under the proposals.
However, as the U.K.'s Brexit negotiations with the European Union progress, this could, however, become more challenging. In the future, for operating in the U.K. and in the European Union once Britain formally leaves the EU, banks may be expected to hold additional liquidity pools.
With low or even negative interest rates adding pressure on their profitability, banks across the globe are operating in a tough environment. Meanwhile, the long-term strategies for financial institutions operating in the EU are being impacted by the uncertainty around Brexit.
Adding a few extra levels of regulatory requirements to ensure banks are not dependent on taxpayers' money in times of crisis on existing EU banking rules formed the basis of the comprehensive set of plans, aimed at further strengthening the resilience of EU banks. The Commission’s proposals needs to be approved by heads of state from each member country and could be ratified by the European Parliament as the Commission is the legislative arm of the EU.
"Europe needs a strong and diverse banking sector to finance the economy. We need bank lending for companies to invest, remain competitive and sell into bigger markets and for households to plan ahead. Today, we have put forward new risk reduction proposals that build on the agreed global standards while taking into account the specificities of the European banking sector," Dombrovskis, responsible for financial stability, financial services and the capital markets union, said in a press statement on Wednesday.
The Capital Requirements Regulation (CRR) and Directive (CRD), which were adopted in 2013 and spell out the required capital that financial institutions should hold in their reserves, are aimed to be amended by the proposal.

Science & Technology

Chinese Study Claims Heart Diseases Can Be Reduced By Having An Egg A Day

Asteroid mining: Reality or fiction?

3D Printing Used For Life Saving Kidney Transplant In Two Year Old At U.K. NHS

California to require solar panels for new homes by 2020

Blockchain Enables De Beers To Track Diamond From The Miner To The Retailer

Microsoft releases Windows 10’s April 2018 Update

DNA Sequencing Project Proposed For All Complex Life Forms On Earth By An Int’l Team

Facebook may start production of its own microprocessors

Long-Term Alcohol Monitoring Could Be Possible With A New Injectable Chip Developed By U.S. Researchers

Sweden Now Has The First Electrified Road In The World

World Politics

World & Politics

The British government is trying to unblock money to pay off the national debt

Ministerial Visit From India To North Korea Aimed At Strengthening Ties

What countries are the biggest losers of Trump’s Iran decision?

World's Oldest Elected Prime Minister Is Malaysia’s 92 Year Old Mahathir Mohamad

Why Is U.S. Pulling Out Of The Iran Deal A Big Deal For The World

Merkel, Macron, May call on Iran to adhere to the nuclear deal

Arab Region Driven In ‘Wrong Direction’ In Last 10 Years, Say Arab Your: Survey

German doctors demand a tax on sugar