ECB concerned about branch system: Brussels cracks down on non-EU banks

The EU Commission wants to gain more control over weakly regulated banks and force corporations to convert their branches into subsidiaries. This requirement could be expensive for some banks and, according to bank lobbyists, even lead to retaliatory actions.

The EU Commission wants to regulate branches of banks whose parent company is based outside the EU more strictly. As the “Financial Times” reports, citing informed persons, the commission is working on a plan to force the corporations to convert their branches into subsidiaries if their activities are sufficiently large and risky.

According to the “Financial Times”, the commission wants to gain more control over weakly regulated banks, the number of which is increasing rapidly as a result of Brexit. The European Central Bank (ECB) was concerned that the branch system would allow some foreign banks to evade ECB supervision. The EU project could be expensive for these banks because subsidiaries have to hold more equity and liquidity than branches.

According to the Financial Times, Brussels officials are of the opinion that this would bring the EU closer to the practice that has long been in place in the USA and Great Britain. Bank lobbyists warn, however, that retaliatory actions by other countries could occur. According to the “Financial Times”, the project is still being discussed in the Commission and is to become part of the legislative package that the EU intends to pass to implement the Basel 3 capital adequacy directive.

According to the Financiel Times, a senior executive at a major US bank is “concerned that he will be caught off guard and become collateral damage by a proposal targeting black sheep.” A senior executive at another bank said that while his bank’s branches were unlikely to be converted into subsidiaries, it could change the way the bank operates as it needs to be prepared for the possibility.

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