The ECB is responsible for harmonising banking regulations across the European Union, under the Single Supervisory Mechanism (SSM).
Since 2000, a series of capital requirements directives have been developed with the aim of harmonising regulations across the EU, the ECB said. However, the latest of these still leaves over 150 'options and discretions' open to national governments, and "differentiated application of [these] may have material effects on the overall level of prudence of the framework and on the comparability of capital ratios that make it difficult for markets and the public to gauge the capital strength of the banks," the ECB said.
The ECB's current proposal looks at how these can be harmonised. The bank has published a draft regulation and draft guide, laying out an SSM-wide policy on the options and discretions available to competent authorities in the EU.
"The regulation and the guide have been conceived with the overall objective to foster the harmonisation of supervisory practices and the establishment of a level playing field within the SSM area, in order to preserve financial stability and integration of the banking system," the ECB said.
The draft regulation is a "binding legal instrument of Union law", laying out the legal obligations of significant banks under the SSM on "general" options and discretions, while the guide is designed to give guidance to supervisory teams on how to individually assess other options and discretions, which need to be decided on a case-bay-case basis, the bank said.
The ECB describes "general" options and discretions as those where it can take a policy decision that applies to all banks under its supervision.
Banking expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com said: "I would guess that banks will not be overly happy with an approach which appears to significantly impact their ability to record deferred tax assets as capital, which some well have relied upon to meet their relevant regulatory capital requirements."
"The ECB clearly views this approach as increasing transparency in the banking system which will lead to an increase in confidence and cross-border lending, resulting in exposure to a financial downturn in a specific territory having less impact as the lending risk is spread across various territories," Ruck said.
The deadline for submitting comments is midnight CET on 16 December. The ECB will hold a public hearing at its main building in Frankfurt am Main on 11 December.