Europe has passed enough rules to see its banks through the next financial crisis. The biggest hurdle to effective oversight now is the bureaucratic labyrinth that threatens to undermine the whole project.
That’s according to Denmark’s minister in charge of financial legislation, Henrik Sass Larsen.
“With the current capital requirements and supervision in place, I have a hard time seeing why anybody would want to ask for more,” he said in an interview in Copenhagen on Tuesday. Basel III and Europe’s capital requirements directive “introduced very complex legislation, so I’d rather urge that we de-bureaucratize all the legislation we’ve made.”
The comments mark a shift in tone from the first European Union member to enforce bail-in legislation. Denmark’s framework for bank resolutions was used as a model for the rest of the EU. But Sass Larsen says legislators now need to give banks some breathing space and ensure the rules that have been agreed on are pieced together in a way that makes sense.
Not surprisingly, it’s an argument that resonates with the banks. Nykredit A/S, Europe’s biggest issuer of mortgage-backed covered bonds, says lenders are overwhelmed by the sheer number of pages they need to digest to make sure they’re complying with the latest rules.
“The capital requirements directive amounted to more than 1,000 pages, in draft mode,” said Jesper Berg, head of regulatory affairs at Nykredit in Copenhagen. “The problem is that having a single rule book may sound like a brilliant idea at first, but in practice it becomes an enormous task because it has to cover every detail for 28 countries.”
Berg, who has worked at Denmark’s central bank and the International Monetary Fund, says the result is that banks spend less time discussing strategy as efforts to comply with complex rules dominate their agendas.
Banks needed heavier regulation after their “unintelligent and irresponsible” behavior leading into the financial crisis, said Lars Seier Christensen, chief executive officer of Saxo Bank A/S. “But now it’s gone overboard and there are too many rules that don’t make sense.”
According to Sass Larsen, there’s no question the stricter rules agreed on were needed after banking excesses across the world drove the global economy into its worst financial crisis since the Great Depression. And any steps toward reducing the complexity of the regulatory framework should only happen in such a way that ensures “we don’t sell out on our goals,” he said.
But he draws the line at more rule-making.
“We believe we’re where we should be already,” Sass Larsen said. “We have no need for additional bolstering or insurances; we haven’t spotted any area where more is currently needed.”