There will be a transition period for banks to implement the new regulations. In Finland, the financial sector estimates that the conditions for low-risk loans will tighten.
Brussels
Finland the financial sector is still dissatisfied with the upcoming reform, where the EU tightens the solvency rules for banks. Finance ministers of the EU member states accepted the reform in their part on Tuesday, and it will next move to tripartite negotiations with the member states, the EU Parliament and the Commission.
The new solvency requirements fully implement the banking regulatory standards named Basel III in the EU.
According to the view of the financial sector, the reform will result in Finnish banks having to treat low-risk housing and business loans as if they were higher-risk loans.
When banks have to commit more equity to low-risk loans as well, loan terms will probably tighten so that banks can cover the higher cost of capital, says the leading lawyer of the industry’s interest organization Finanssiala Olli Salmi.
Banks after the EU presented the details of the reform a year ago, the supervisory Finanssivalvonta estimated that Finnish banks’ capital requirements for the current credit portfolio would be tightened by 15–20 percent.
In August 2022, Finanssivalvonta revised its estimate and concluded that the increase in Finnish banks’ capital requirements will on average be significantly lower than estimated, i.e. around three percent.
Read more: The EU demands more of the “most expensive raw material” from banks – the entire financial sector of Finland visited Brussels to warn that the reform will hit Finnish banks hard
Finnish banks in addition, other European banks have also lobbied hard against the tightening of solvency requirements.
Due to the corona pandemic, the member countries extended the regulation’s entry into force by two years, and it will now be moved to 2025.
The proposal also includes a temporary transitional provision that allows low-risk loans to be taken into account in the calculation, but only temporarily. The financial industry would have liked it to be permanent. The transition provision ends by 2032.
According to Olli Salme, banks have to take the new regulations into account already when granting loans, despite the transition period, because the length of a home loan can be, for example, twenty years.
Presidency country of the Czech Minister of Finance Zbyněk Stanjuran according to the member countries did not want to rush the entry into force, so that the banks’ ability to finance the European economy would not be disturbed now that the economy is facing serious problems due to, among other things, the rise in energy prices.
German Finance Minister by Christian Lindner according to the transition period gives banks flexibility to adapt to the new rules.
The Basel III solvency regulation dates back to the financial crisis of the early 2000s, which gave rise to a global banking crisis. It created the need to improve the supervision of banks and curb their risk-taking, as well as to limit taxpayers’ losses if a troubled bank should be bailed out regardless.
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