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EU must recognise risk of over-regulation in banking, says expert

Jeroen Dijsselbloem, president of the Eurogroup and chair of the European Economic and Financial Affairs Council (ECOFIN), is determined to strengthen the EU banking union in spite of calls to reduce regulation, the FTSE Global Markets news site has reported. 19 Feb 2016

However, banking reform expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said the danger of overly intensive regulation must be recognised by the EU.

Dijsselbloem said the industry has made progress in raising capital buffers and strengthening supervision, FTSE Global News said.

Non-performing loans remain a problem for banks in some countries, and "there is no magic stick to make those disappear, but we need to gradually build those down and make sure our banks are open for business," he told the news site.

The Eurozone is recovering from the economic crisis, with improvements to the EU deficit and government debt, and structural reforms, Dijsselbloem said.

Market volatility in recent weeks should not cause the alarm that it has done, he said: "Somewhere, the crisis is alive in our heads and very little has to happen in Europe and we are in crisis again," he told FTSE Global News. 

Ruck said: "While the external public perception appears to be that banking continues to require close regulation to improve its reputation, it is surely for the various regulatory bodies to work with the industry to support its desire to build its reputation. The dangers of overly intensive regulation are beginning to be recognised by the regulators and government in the UK but this requires ongoing support including from the EU."

On a related note, Dijsselbloem told the news site that it is important for Greece to press ahead with the reforms it has promised, FTSE Global News said.

"Although the quality of the reforms to be implemented is our main concern, the authorities should now shift into high gear so that negotiations can be finalised as soon as possible", he told the news site. "I very much realise that some of the reforms necessary are politically difficult for society, but it is of prime importance to implement what was agreed in the summer of 2015.2

Dijsselbloem also praised Cyprus which will exit its EU loans programme at the end of March, FTSE Global News said.