Financial Rule Avalanche Brings Economic Benefit, EU Says

A swathe of more than 40 financial-regulation laws prepared by the European Commission in response to the market turmoil unleashed in 2008 will have economic benefits that outweigh the costs, the regulator said.

The thousands of pages of rule-making -- the European Union’s equivalent of Dodd-Frank in the U.S. -- will have a negative effect on the EU’s economic output of 0.3 percent per year, according to estimates by the commission. This will be more than offset by benefits in the order of 0.6 percent to 1.1 percent of EU output per year, arising from “reductions in the incidence and costs” of future crises, the commission said in a study published today in Brussels.

“There are severe data limitations that impede the quantitative assessment of many reform measures,” the commission said. “For many market variables, there is either no publicly available data, or the available data doesn’t go sufficiently far back to enable meaningful analysis.”

Legislation pushed through during the current European Commission’s five-year mandate, which ends on Nov. 1, has included a 400-page rewrite of the bloc’s bank-capital rules, and a more than 600-page financial-markets law addressing topics from high-frequency trading to investor information.

Banks have attacked many parts of the EU’s post-crisis reform agenda, including warnings that curbs on bonuses will harm the competitiveness of the EU’s financial-services industry, and that liquidity rules risk choking lending to businesses.

Split Up

While a slew of measures have been adopted into law since Lehman Brothers Holdings Inc.’s 2008 collapse prompted a wholesale regulatory review, others remain in draft form, under scrutiny from national governments and the European Parliament. These include plans to ban the biggest lenders from proprietary trading, and to hand regulators powers to split them up, that will today be discussed for the first time by a working group of national officials.

“We have delivered what we set out to do,” Michel Barnier, the EU’s financial-services chief, said in an e-mailed statement. Benefits outweigh costs “for every individual measure,” he said.

Some parts of the EU reform program “may have unintended consequecnes if left unaddressed,” according to the report, including clearinghouses becoming more systemically important as they handle more derivatives trades.

“Ongoing monitoring and review of all reforms is required to ensure that they deliver their intended benefits while avoiding the undesired effects,” the commission said.

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