The outgoing President of the European Central Bank Mario Draghi, has told Maltese MEP Alfred Sant that there could be some ‘small actions’ could be placed in banking rules to alleviate stress on smaller banks.
Draghi’s response comes following Dr Sant’s question on the knock-on of increased cost burdens for small and medium banks on small and medium-sized businesses.
Dr Sant said that the small banks in small states had built up their own niches. However, these small banks could not sustain the blanket regulatory initiatives that covered all banks in the European Union. This also increased their costs, ‘inhibiting their risk appetite.’
‘This is affecting badly SMEs and start-ups. Bank support to which these were accustomed has shrunk as banks shy away from new project proposals. Many times, SMEs have almost no other way by which to fund their requirements,’ the MEP said.
Draghi, who appeared for the last time as Chairman of the European Systemic Risk Board, responded to Sant’s statements by explaining that the modern banking system was at ‘over-capacity and an over-banking’ and that there wasn’t one universal way to resolve structural weaknesses.
He added that ‘we have the same set of rules that apply to small and big banks at the same time. This can harm the lending capacity of small banks. More proportionality could be introduced in the rules as certain rules imply a bureaucratic compliance. Some small actions can help to cope with this issue. The current rules see a distinction. Also, there are as well structural weaknesses coming from small banks. These two processes should go hand in hand.’