Banks are bracing for another blow against globalisation.
According to a report in the Financial Times, the European Union is proposing to toughen capital and liquidity requirements for lenders’ subsidiaries in Europe, in order to make those business units safer and weaken the wider economic impact of their failure in the event of a crisis.
The proposals, if enacted, would make it harder for banks to shift capital around their global networks, and more expensive to do business internationally.
While that might make their separate subsidiaries safer for local regulators in places like France and Germany, it might make the banks more brittle at a group level. For example, they would be less able to shift resources from a well-capitalised subsidiary in one country to another that was in the midst of a crisis elsewhere.
The proposal mirrors a similar regulation put in place by the US in 2014, which raised capital requirements for European banks operating in America.
While it is something that might slip under the radar in a year of collapsing trade deals and headline-grabbing popular movements such as Brexit, it has the potential to do just as much damage to globalised business.
The harder and more expensive it becomes for banks to move capital about internationally, the less profitable and appealing it becomes, which could raise the costs of doing business.
Meanwhile, banks are contending with an increasingly fractured regulatory environment. The central bankers and regulators on the Basel Committee on Banking Supervision are split on how to make banks safer going forward. European regulators are becoming more wary of US counterparts, accusing them proposing rules that benefit their own banks at the expense of those elsewhere.
Deutsche Bank CEO John Cryan voiced these concerns at a conference on Friday, saying, “I think it’s about time that Europe started introducing rules that benefited Europe and didn’t play to some policy of global harmonisation that sounds good on paper but is not relevant to anything,” according to a report in the Financial Times.
Trade deals are not the only international agreements that look vulnerable right now.
Business Insider Emails & Alerts
Site highlights each day to your inbox.