ECB Urges Euro Zone Governments to Maintain Strict Bank Capital Requirements
ECB's Position on Bank Capital Requirements and Euro Zone Banking Competitiveness
Current Economic Environment and Risks
FRANKFURT, May 4 (Reuters) - Euro zone governments should not lower banks' capital requirements as this would do little to boost credit while demand is weak and the environment is fraught with risks including war in the Middle East, European Central Bank chief supervisor Claudia Buch said on Monday.
Competitiveness of Euro Zone Banks
European Union lawmakers are reviewing options to boost the competitiveness of euro zone banks, which lag behind their U.S. rivals on international markets.
ECB's Recommendations to Finance Ministers
Addressing euro zone finance ministers, Buch argued banks needed solid capital and liquidity positions to weather risks ranging from the Iran war and its economic consequences to trouble in private markets and cyberattacks.
Impact of Capital Requirements on Lending
"Banks currently have sufficient capital to lend to the economy, but elevated risks, lower risk tolerance and weak demand for loans are preventing the supply of credit from expanding more quickly," she said in remarks prepared for a meeting with the Eurogroup of finance ministers on Monday.
"In this situation, lowering capital requirements may simply result in higher distributions to shareholders rather than more lending to firms and households."
Calls for Regulatory Reforms
She reiterated the ECB's long-standing calls for establishing a common deposit guarantee and knocking down regulatory hurdles between countries that prevent the free flowing of liquidity and capital.
ECB's Approach to Mergers and Recent Developments
As for the ECB's own role, Buch repeated that supervisors would "treat cross-border and domestic mergers alike".
Recent Bank Merger Activity
Her comments came as Italian bank UniCredit was trying to take over Germany's Commerzbank amid fierce opposition from the government in Berlin.
(Reporting by Francesco Canepa; Editing by Andrew Heavens)
