ECB’s Donnery Caution: Resist Weakening Banking Rules

FRANKFURT (Cryptonesia) – European Central Bank regulator Sharon Donnery stated on Tuesday that she believes there is potential for simplifying banking regulations, though she cautioned against weakening them.

The European Central Bank has initiated a task force led by Vice President Luis de Guindos to search for methods to simplify banking regulations. This week, Donnery is the third central banker to emphasize that this initiative should not be interpreted as deregulation.

She stated, 'We should never compromise the resilience that we fought so hard for following the global financial crisis – not for the sake of supposed competitiveness, nor under the guise of simplification. This is a red line and must stay as such.'

In the European Parliament on Monday, De Guindos adopted a comparable stance, and Olli Rehn, the Finnish ECB governor and a member of the task force, also stated that banks should keep "robust" capital reserves.

Donnery highlighted that the regulatory framework was already more lenient for "small and non-complex" banks, though she believed there was potential for greater "proportionality."

She mentioned that there might be room for greater balance within the European regulatory framework. However, let me emphasize: regulations ought to be as straightforward as possible without sacrificing necessary complexity.

Donnery additionally stated that the regulation needs to be more explicit regarding which investors shoulder the losses when a bank fails.

She mentioned that market participants' capacity to grasp the implications of the regulatory framework — such as loss-sharing provisions and supervisory limitations when a bank faces declining solvency — could influence their eagerness to invest.

Donnery further noted that even under regular circumstances, tracking adherence to various regulatory measurements and grasping all their possible interconnections can present operational expenses and difficulties for both financial institutions and regulators.

(Reported by Francesco Canepa Edited by Mark Potter)