FRANKFURT, Nov 3 (Reuters) - The EU should introduce safeguards ensuring that banks support their subsidiaries in other member countries if they run into trouble, European Central Bank supervisor Pedro Machado said on Tuesday, adding this would unlock lending and mergers.
Machado said this change, part of reforms currently being discussed in Brussels, could free up around €200 billion ($224 billion) in liquidity that is currently "ring-fenced" by national regulators as a local liquidity buffer in the various countries where European Union banks operate.
"The proposal will ... in particular try to introduce the sort of private safeguards that (ensure) the hosts feel comfortable and let fencing go," he said during a discussion at a conference in Frankfurt.
Cross-border bank mergers in the euro area have been close to zero since the financial crisis, with an unfinished banking union and national requirements in areas including liquidity, deposit insurance and insolvency law continuing to fragment the market.
In a speech earlier at the conference, Machado said European banks should not expect regulators to dilute key post-crisis capital safeguards as part of efforts to simplify banking rules and boost lending.
In particular, he defended the "output floor", a global rule that limits how much banks can reduce capital requirements by using their own internal models to quantify risks.
"We should uphold rigorous capital standards, preserve the role of the output floor as a backstop to internal models and continue to address the costs of resolution, so that scale does not come at a cost to the taxpayer," he said.
European lenders have stepped up lobbying for lighter rules, arguing that they face a competitive disadvantage against US rivals and that easing requirements could unlock more financing for the economy.
But Machado said studies provide little evidence that lower capital requirements would generate meaningful economic benefits and questioned claims that large US banks operate under a substantially lighter regime.
He reaffirmed, however, the ECB's support for targeted relief for smaller lenders that would reduce reporting and supervisory burdens on them without lowering prudential standards.
($1 = 0.8937 euros)
Reporting by Francesco Canepa; Editing by Andrew Heavens, Kirsten Donovan and Emelia Sithole-Matarise
Source: Reuters