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- Financial deregulation in the EU could trigger a crisis or a salvation
- EU officials consider easing, but Dominique Laboureix and Frank Elderson caution
The easing of financial regulation in the EU, which is being considered by key leaders, probably with an eye on the US – is being met with warnings from Dominique Laboureix and Frank Elderson. They argue that short-term stimulus can make the economy unprepared for volatility and sacrificing stability for competitiveness is short-sighted.
More About Dominique Laboureix and Frank Elderson’s Cautions
Brussels is considering easing capital rules for banks and insurers. It plans to significantly reduce ESG (sustainability) requirements to spur economic growth amid fierce competition and an increasingly ambiguous relationship with the US.
However, the central bank governors of Germany, France, Italy, and Spain have already written a letter to the European Commission asking it not to relax regulation, top financial supervisors – the Single Resolution Board (SRB) and the European Central Bank (ECB) have criticized such an initiative.
In particular, Dominique Laboureix, referring to the 2008 crisis:
“If it is about deregulating and lowering the bar on financial protections, we will not be ready to tackle volatility. That means crises, which means less growth.”
He added:
“I am ready to discuss simplification, but I am not ready to lower the bar in terms of protecting financial stability. Don’t forget the 2008 crisis. What did that mean? Bailouts everywhere.”
Frank Elderson also made some rather impressive comments as well, referring to the €1.5 trillion in capital support and €3.7 trillion in liquidity injected by EU governments post-2008:
“It’s good to remember why we did that in the first place. We need not be complacent and say the next decade will be rosy — so we have to be wary about doing away with supervisory functions that could lead to this situation repeating itself. The debate on competitiveness should not be used as a pretext for watering down regulation.”
Additionally, he pointed out ESG reporting rules:
“Was all this perfect? Probably not. Can we do better without paying too much of a price? Possibly. But if it were to lead to banks not having the data they need to assess these risks, that would be a problem for banks and would make our work as a supervisor more difficult.”
Generally, they make sense because the classic model where you ease regulation and get economic growth is not so simple, and to perform well requires a combination of many factors. Also, a strong reserve and reinforced autonomy are needed to withstand in case things don’t go according to plan.
Remember the concerns about external challenges that could significantly affect such a plan, such as climate change, floods, droughts, wildfires, and the transition away from fossil fuels.
Elderson added, reminded penalties for missing the ECB’s second deadline on climate action set for the end of 2023:
“Periodic penalty payments worth up to 5% of their average daily turnover, every day, for up to six months. There are a few banks for which such penalties were still a concrete possibility.”
Conclusion
What if their concerns are overly conservative, and the US strategy with its proactive initiatives to deregulate traditional finance, add DeFi, and accumulate Bitcoin make it the leader?
Or should the EU take its time and leave the bold experiments to the US, and only then adopt it in case of guaranteed success? The final answer will probably be difficult, as their economies are very different.
Stay tuned for updates, be adaptive in the rapidly evolving financial and crypto landscape, and keep your strategy grounded, balanced, and beneficial.
