The fact that the pendulum can swing back and forth with regard to banking regulations is nothing new. However, it is quite challenging to precisely identify the turning points in real time. However, there are increasing indications that such a point may now have been reached.

In the U.S. Donald Trump is emphatically crypto-friendly and has already indicated that he wants to give the banking sector more leeway. Even before his election, the U.S. banking lobby had successfully pushed to dilute or delay the implementation of Basel III regulations - postponing them until after the vote. Switzerland, by contrast, stood alone in fully implementing Basel III on schedule at the start of 2025, as originally agreed by all parties.

Branson's Speech as Another Piece of the Puzzle

In the EU, efforts are underway to streamline the complex complex web of self-imposed sustainability regulations - particularly to ease the burden on small and medium-sized enterprises and preserve competitiveness. While these measures do not directly target banking regulation, they inevitably impact financial institutions, especially in the growing field of sustainable finance.

The President of the German Federal Financial Supervisory Authority (BaFin) provided another piece of the puzzle on Wednesday. Mark Branson is also well-known in this country, particularly from his time as Director of the Swiss Financial Market Supervisory Authority (Finma).

«Not Specifying Everything Down to the Last Detail»

At BaFin's annual press conference, he vowed (as befits a supervisor) that no compromises should be made on the resilience of the financial system. However, he devoted a large part of his speech to the question of how the European regulatory and supervisory system could be made more efficient in order to make Europe more attractive as a financial and investment location without lowering the level of security.

Branson advocated reducing the complexity of regulation. «So, not prescribing everything down to the last detail. Wherever we don't need detailed rule-based regulation, we should make it principle-based. This creates freedom not only for companies, but also for us as regulators.»

Do Good and Talk About

Regulation and supervision should also be made more proportional - in this country, we would probably call it «proportionate». «In other words, appropriate and manageable for companies of all sizes.»

Branson did not spare his own authority. He stated that BaFin had reduced the complexity of administrative practice over the past twelve months and ensured greater proportionality and clarity. Branson recalled the relief for small credit institutions with regard to stress tests and reporting.

BaFin not only does good things, it also talks about them. Branson: «In addition, we have once again pointed out to the institutions the scope they can use - which many had not done before. Numerous banks and savings banks can now make their risk management processes less complex.» He also held out the prospect of further simplifications, with regard to the minimum requirements for banks' risk management.

«Abolish Unnecessary Rules Instead of Tweaking them»

In connection with the Bafin's draft legislation proposals, Branson sounded almost like a battle-hardened bank lobbyist: «Here, the high costs incurred by the institutions were offset by little added supervisory value. Our clear recommendation is therefore: abolish it. It is always better to abolish unnecessary obligations than to tweak them.»

Bafin will also lobby the new German government for less complexity and more proportionality in regulation. «And certainly also in the committees of the European supervisory authorities.»

«Prepared not to Fully Implement European Guidelines in Germany»

Branson also takes an unconventional stance when it comes to EU regulations: «If we don't get our way there, we would be prepared not to fully implement some European guidelines here in Germany. In our view, some of the EBA guidelines are too granular for small banks. For example, the new ESG guidelines of the European Banking Authority EBA. We will only be ‹partially compliant› here. We will not apply the guidelines for the less significant institutions.» The EBA guidelines on processes and controls for monitoring financial sanctions will also not be adopted in full.

The Bafin President was also unable to refrain from making a point with regard to an objective that is still a high priority for the EU: «We will not win the fight against the climate change with reports from small banks.»

Father of the Small Bank Regime in Switzerland

Mark Branson had already introduced a so-called small bank regime as Finma Director, which was intended to simplify the complexity of regulation and supervision for smaller institutions and therefore make it more proportionate.

Switzerland currently stands out as an exception in the broader pendulum swing of regulatory trends. Here, the discussion about tightening and tightening up, particularly in the area of capital adequacy, appears to be continuing almost unabated - largely driven, of course, by the solitary disaster with Credit Suisse.

Masterstroke or Own Goal?

However, the question of whether it is really the last word in wisdom to tighten the screws even more for the sector in this country, while they are being loosened all around, is becoming increasingly urgent for Parliament, the Federal Department of Finance and Finma.

A defiant insistence on Switzerland's special status in this area might ultimately prove to be a self-inflicted setback.