Europe’s dashed hopes of financial regulation

The analysis argues that the European Union has experienced a period of 'regulatory fatigue' and 'backsliding' in financial oversight since 2014. It highlights five specific failures: the abandonment of structural banking reforms to separate high-risk activities, the adoption of dysfunctional prudential rules (such as an inoperative 3% leverage ratio), the failure to effectively limit food speculation through high technical thresholds, the lack of supervision for the growing shadow banking system, and the 'resurrection' of risky securitisation practices. The author concludes that these failures, combined with the shift of risk to under-regulated entities and the impact of the Covid-19 pandemic, leave the EU ill-equipped to handle a new financial crisis.

• The European Commission abandoned a 2014 legislative proposal for structural banking reform intended to address 'too big to fail' systemic risks by prohibiting proprietary trading and separating core banking from high-risk activities. The plan was formally withdrawn in October 2017 under the 'better regulation' imperative, which sought to reduce legislative output.
• Prudential rules established in the CRD V and CRR II banking package are deemed dysfunctional because they avoid imposing constraints on large banks. Specifically, the leverage ratio threshold of 3 per cent is considered inoperative as most major banks already exceeded it, and the net stable funding ratio (NSFR) was calibrated more flexibly than Basel Committee recommendations, allowing banks to fund speculative derivative transactions with short-term debt.
• EU regulations intended to limit food speculation on commodity derivatives have been watered down through 'technical standards' adopted in early 2017. These standards set per-trader limits at 20 per cent for human consumption foodstuffs and 25 per cent for other commodities, which are significantly higher than the 5 to 15 per cent limits used in the United States.
• The European Union has failed to regulate the shadow banking system, which grew to 52 trillion dollars globally in 2017. Despite a 2013 legislative provision requiring the Commission to report on and potentially propose exposure limits to shadow banking entities by December 2015, the Commission never complied, and the Council refused to include the provision in the new banking package.
• The 2017 regulatory framework for securitisation is criticized for failing to prevent systemic risk. Banks are only required to retain 5 per cent of the risk on their balance sheets, whereas experts suggest 30 per cent. Furthermore, the framework permits 'synthetic securitisation', which allows investors to bet on borrower defaults without financing the real economy.
• The EU's financial stability is threatened by the fact that 13 European banks are of global systemic importance and many have prioritized bonuses and dividends over strengthening equity capital. The author notes that the Covid-19 pandemic and the stock market crash of March 9, 2020, may trigger a financial crisis that the current 'kludge' of inconsistent legislation cannot contain.

APA

Denis, G. (2020). Europe’s dashed hopes of financial regulation. Green European Journal. https://www.greeneuropeanjournal.eu/europe-rues-dashed-hopes-of-financial-regulation/

Chicago

Denis, Gaspard. Europe’s dashed hopes of financial regulation. Green European Journal, 2020. https://www.greeneuropeanjournal.eu/europe-rues-dashed-hopes-of-financial-regulation/.

Wikipedia

{{cite report |last1=Denis |first1=Gaspard |title=Europe’s dashed hopes of financial regulation |publisher=Green European Journal |date=20 March 2020 |url=https://www.greeneuropeanjournal.eu/europe-rues-dashed-hopes-of-financial-regulation/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{denis2020europes, author = {Denis, Gaspard}, title = {{Europe’s dashed hopes of financial regulation}}, institution = {Green European Journal}, year = {2020}, month = mar, url = {https://www.greeneuropeanjournal.eu/europe-rues-dashed-hopes-of-financial-regulation/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }