EU Banks Losing Profits, Lending Ability Because Of Reforms, Report Says

The Association for Financial Markets (AFME) in Europe wants regulators to curb the development of aggressive bank regulation, according to Reuters reports on Thursday (April 12).

The bank lobby has released a study aimed at reducing regulators’ heavy hand in the financial services market that the group said has made it more difficult for banks in Europe to support the broader economy in the wake of the financial crisis. Authorities imposed greater capital requirements and other risk mitigation rules on financial institutions after taxpayer bailouts of banks in the EU and elsewhere around the globe during the financial crisis about a decade ago.

The AFME released a report along with PwC which surveyed 13 international banks, accounting for a combined 70 percent of capital market activity around the world, reports said. Analysis found the annual cost of regulation costs $37 billion for 13 banks combined, amounting to 39 percent of total capital markets expenses in 2016.

Regulation is also linked to a decline in profitability among the banks between 2010 and 2016, the report found.

“While the benefits from the post-crisis regulatory framework are clear, now is the right moment to examine how this framework has influenced banks’ capital markets activities,” said AFME Chief Executive Simon Lewis in a statement. “Our study finds that since the crisis, there has been a significant decline in banks’ global capital markets assets with regulation being by far the largest single driver of these changes.”

According to PwC Director Nick Forrest, regulations are also linked to the inability among banks to support “issuance, trade corporate debt and equity,” the report said.

“This can ultimately lead to reduced access and higher costs of borrowing for corporate borrowers,” Forrest explained.

The study concluded that negative consequences linked to stricter bank regulations are likely to continue.