Prospects for two-tiered banking regulation in Europe

A skyline view of Frankfurt’s central business district
The costs of complying with EU regulations can be borne by large banks, like many of those found in Frankfurt’s business district. Small banks, however, are another story (source: dpa)
  • EU banking regulations are complex and expensive to comply with
  • This situation inherently favors large banks, which can absorb the costs
  • Some regulators argue for a second, lighter set of rules for smaller lenders
  • Creating such a framework would challenge the push for a “unified” system

Over the past two years, European Union authorities have begun considering the issue of “proportionality” in banking regulation and supervision. The question is whether to continue the current one-size-fits-all approach. Should regulators impose the same rules across the entire spectrum of financial institutions or adapt rules to the specifics of banks – their size, complexity and relevance for financial stability? The idea is that smaller, less risky banks should be subject to simpler rules than the large, globally active, systemically important ones.

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