Finance Watch responds to European Parliament’s inaction on crucial financial stability regulation

24 October 2024 - 00:01 h

Media Alert

On 24 October 2024, the European Parliament’s three month scrutiny period on critical financial stability legislation concluded without action. The Delegated Act which postpones the Fundamental Review of the Trading Book (FRTB) until January 2026, marks a concerning step back from essential post crisis reforms. Finance Watch warns against the flawed narrative that regulations designed to protect society from the risks taken by banks undermine European competitiveness.

The European Parliament let the clock run out on its three month scrutiny period, failing to take action on the European Commission’s Delegated Act that postpones the implementation of the Fundamental Review of the Trading Book (FRTB) until January 2026. By leaving key market risks unaddressed, the European Parliament has seemingly abandoned the fight for financial stability. This inaction is a blow to the EU’s commitment to Basel III reforms and risks an international regulatory race to the bottom on crucial post crisis regulation.

The FRTB is a vital element of the Basel III package, designed to provide stronger oversight of banks’ trading activities and ensure that their own equity is sufficient to cover market risks. Without these reforms, the vulnerabilities that led to the 2008 financial crisis remain dangerously unresolved.

“By not even debating the possibility to reject one of the elements necessary to finalise the transposition into European law of the Basel framework 15 years after the financial crisis, the ECON Committee of the European Parliament has once again demonstrated its porosity to the flawed narrative of the banking lobby.”

Thierry Philipponnat, Chief Economist at Finance Watch

The EU’s postponement of FRTB has been justified on the grounds of maintaining an “international level playing field”. Far from maintaining a level playing field, the delay risks triggering a regulatory race to the bottom, where jurisdictions postpone or dilute essential reforms. This postponement of the FRTB sends a dangerous signal that regulatory standards can be weakened in the face of industry pressure. The claim that more stringent rules would undermine European ‘competitiveness’ is deeply flawed. Stable, well capitalised banks are not a barrier to growth, they are a precondition.

As much of a rear-guard battle as it may be, it must be repeated that there is no relationship whatsoever between the competitiveness of the European economy and the implementation of rules aiming at protecting society from the risks taken by banks in their trading activities. Financial stability is a condition of competitiveness, not an impediment.

Once again, European lawmakers seem to have abandoned the fight for financial stability, and they will bear an enormous responsibility when the next financial crisis costs hundreds of billions of euros to public budgets again, just as it did 15 years ago.”

Thierry Philipponnat, Chief Economist at Finance Watch

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About Finance Watch

Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.

About Thierry Philipponnat, Chief Economist at Finance Watch

After graduating from Institut d’Etudes Politiques de Paris and training as an economist (Master’s degree in economics), Thierry Philipponnat started a career in finance in 1985, holding different positions in commercial and investment banking. He then crossed into the NGO world, campaigning and lobbying on behalf of Amnesty International, with a particular emphasis on corporate social responsibility and on the impact of the financial sector on human rights.

In 2011, he founded Finance Watch, which he managed as its first Secretary General until 2014. In October 2019, Finance Watch appointed Thierry Philipponnat as its Head of Research and Advocacy, and in January 2022 as its Chief Economist.

Philipponnat was a member of the Board of the French Financial Markets Authority (AMF) until 2022 and of the Sanctions Committee of the French Banks and Insurance Companies Supervisor (ACPR) until 2024. He chaired the AMF’s Climate and Sustainable Finance Commission as well as its Market Consultative Commission. He was a member of ACPR’s Climate and Sustainable Finance Commission and of its Scientific Committee. He was also a member of European Financial Reporting Advisory Group’s (EFRAG) Sustainability Reporting Board and formerly a member of the European Commission’s Platform on sustainable finance.

He is the author of numerous books and articles, and regularly offers comment in the media on a wide range of financial topics, appearing in the Financial Times, Al Jazeera, Reuters, Politico, Euractiv, Le Monde and more.