European banks have had an extremely tough year to date, with shares plummeting across the board. One reason for the unease might be coming from Europe’s banking supervisors, who are imposing tough new regulations on the biggest banks in Europe.
Some of those tough regulations aren’t even made public, making it tough for investors to decide whether its worthwhile to stick money into the banking sector. The European Central Bank is considering giving the public a better window into how it regulates Europe’s largest banks, and how it hopes to prevent a future financial crisis from spiralling out of control.
The debate involves how much capital the continent’s largest banks should hold in reserve. The ECB has set an additional risk buffers for each of the major banks in the 19-nation euro zone. Those buffers, which have been shrouded in secrecy until now, could soon be made public.
At a professional conference hosted by the German central bank, the Bundesbank, the question was raised whether this key figure should be published. Two senior representatives of the ECB bank regulation committee, Klaas Knot, governor of the Dutch central bank, and Felix Hufeld, head of Germany’s BaFin financial regulator, spoke out in favor of the idea.
The ECB bank regulators are under pressure. Although they determine for each bank individually how much capital beyond the legal minimum they must keep on reserve, they have balked at publishing these ratios. This troubles investors, in particular, because banks can only distribute dividends or interest on certain high-risk bonds if they adhere to these ratios.