French Banking Federation Proposes Reforms to Boost European Economic Financing

The French Banking Federation (FBF) has presented detailed proposals aimed at reforming European banking regulations to enhance banks' capacity to finance the economy. According to the FBF, the current post-2008 regulatory framework imposes significant hurdles, particularly high capital requirements and Minimum Requirement for Own Funds and Eligible Liabilities (MREL) standards that restrict banks' competitiveness and profitability. European banks exhibit common equity tier 1 (CET1) ratios around 16%, while MREL averages 28% of risk-weighted assets (RWA) in Europe, compared to 22% in the U.S., indicating heavier capital constraints in Europe.

To address these concerns, the FBF advocates for simplification measures focusing on three priorities: enhancing financing capacity, ensuring competitive equality without compromising financial stability, and removing unnecessary regulatory complexities. Specific proposals include maintaining transitional provisions for output floor calculations, revising the prudential treatment of IT and artificial intelligence investments, and addressing obstacles to cross-border capital flows within the European Union. The FBF also calls for a "quick fix" to align market risk regulations with global standards and to simplify distinctions between trading and banking activities.

Furthermore, the FBF suggests reducing the complexity of the macroprudential framework and aligning MREL requirements with international TLAC standards to improve capital efficiency and reduce reliance on expensive third-party markets. These reforms aim to provide a more supportive regulatory environment for European banks to better support economic growth while maintaining financial stability.