This is particularly relevant as the EC is currently consulting publicly on possible changes to the Capital Requirements Directive.  This article summarises the views of the EACT.    

The EC's consultation paper can be accessed here [click through]  

Why the future of bank regulation is relevant to corporate treasurers

Banks are key suppliers for corporates: at a minimum the bank sector delivers products for funding, payments and other transactional services and risk management, as well as financial and strategic advisory services. Given the size of their balance sheets banks have a profound influence on the economic and competitive context in which our corporates operate. A strong and well-regulated bank sector is an essential support for the job and wealth creation process provided by corporates.

The experience of corporates at the hands of banks over the last year has been well documented. It is worth just emphasising that the actions of the banks resulted in severe cutbacks in lending, an absence of ‘normal’ markets and pricing, substantial increases in lending costs and great uncertainty over the credit-worthiness of banks (with whom corporates deposit funds).

Some examples of how corporates are directly impacted in Basel II terms by the current regulatory approach include:

* The weighting applied to different types of funding assets, such as an ABS structure for an international corporate versus a plain vanilla loan to an SME (Pillar I);

* the definition of different elements of bank risk (credit, market, operational etc) and the regulatory quantification of these risks has a direct bearing on the negotiating position of the banks with their corporate customers with their customers (Pillar II); and

* clarity and completeness of reporting disclosure by banks encourages transparency and market development – as well as limiting, where this is seen as desirable, the scope for regulatory arbitrage (Pillar III).

In addition corporates share with the wider community a wish that the regulatory impact should not be pro-cyclical.

Whilst the observations above are particularly relevant to large multinational companies (whose senior financial staff are well-represented within the EACT) they also reflect the interests of SMEs.

The EACT hopes that consultation on future bank regulation takes proper account of the views of the corporate community served by the banks.