The access of banks from third countries to the European Union is clearly regulated. Only if the European Commission determines that the financial institutions in their country of origin are regulated to the same extent as in the EU can they offer their services throughout the international community. This should create fair competitive conditions and at the same time prevent the individual EU states from undercutting each other. For the capital requirements, however, such equivalence specifications are only available to a limited extent. Banks from third countries without strict supervision are taking advantage of this to expand with branches in the European market. The supervisors, including the European Central Bank (ECB), which is responsible for the largest banks, and the European Commission have been watching this with concern for some time.
Business correspondent in Brussels.
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The Commission therefore now wants to allow the supervisory authorities to force banks from Asia, the USA or Great Britain to convert branches into branches in the EU.
This should apply to such branches, which, due to their size, pose a threat to financial market stability, according to the EU authority.
The move is part of the new capital adequacy rules for banks that EU financial market commissioner Mairead McGuinness intends to present at the end of this month.
That would be expensive for the banks concerned.
The branches converted into established subsidiaries would have the same capital and liquidity requirements as "normal" banks established in the EU.
Otherwise, significantly lower requirements apply to branches.
The status quo is unsatisfactory
The threshold from which third-country banks should convert their branches into subsidiaries is still controversial in the Commission, according to Brussels.
The British newspaper Financial Times had reported that the threshold could be an asset of 30 billion euros.
Either way, there should obviously not be any automatism.
Ultimately, the supervisory authorities have to decide whether to order a conversion or not.
With this, the European Commission wants to ensure that branches of American banks, for example, which are subject to solid supervision, are not put on an equal footing with those from third countries with a rather dubious reputation.
Nonetheless, resistance is rising in the United States as well. Representatives of American banks argue that the mere possibility of being forced to convert a branch into a subsidiary affects the way they do business in the EU - and inevitably leads to higher costs. The opponents of the proposal also warn that third countries could react to the new, stricter EU rules with comparable requirements, which are aimed at the branches of banks from the European Union operating there. In addition, financial institutions from third countries could restrict their activities on the European market, to the detriment of customers.
However, approval comes from the European Parliament.
"As the EU, we should not accept that foreign banks are operating through undercapitalized branches in the EU," says MEP and financial market expert Markus Ferber (CSU).
The status quo is neither satisfactory from the point of view of comparable conditions of competition nor from the point of view of consumer protection, and the problem has worsened since Brexit.
The rules can only come into force if both the European Parliament and the EU member states agree to them.Keywords: branches, countries, institutions, market, banks, move, capital requirements, capital rules, european commission, supervisors, community, country, threshold, requirements, non-eu