As reported by Law360, European Central Bank (“ECB”) Executive Board Member and Supervisory Board Vice-Chair Sabine Lautenschläger suggested in a February 19 interview that the ECB intends to keep “European [banking] institutions on a tighter rein” than the United States appears to intend to do with domestic banks. Ms. Lautenschläger noted “it is imperative that we do not take a leap backwards, especially not on an international scale, but rather ensure that we continue to provide the banking sector, which is indeed global, with a set of international rules.” While noting that potential regulatory changes in the United States might have little effect in Europe given that the “Dodd-Frank Act contains many national rules,” her comments suggested that Europe will not necessarily follow President Trump’s lead in contemplating financial deregulation. As we reported in a prior client alert, President Trump signed an executive order on February 3rd requiring a review of the current financial regulatory regime to determine the extent to which it promotes seven “Core Principles” articulated in the order.
Ms. Lautenschläger’s remarks are only the latest from high ranking European financial officials signaling that Europe will not back track in the face of potential changes in the United States. Speaking to the Committee on Economic and Monetary Affairs on February 6, just three days after President Trump’s executive order was signed, ECB President Mario Draghi noted that “the last thing we need at this point is a relaxation of regulation….[T]he idea of repeating the conditions that were in place before the crisis is something that is very worrisome.”
Still, if President Trump begins to roll back the Dodd-Frank Act and companion regulations, Europe may face competitive pressures to deregulate. And, it is no secret that member states have been critical over at least some ECB policies. For example, in the fall, reports (see here and here, for example) surfaced that some European regulators threatened not to accept heightened capital requirements as the Basel regime is revamped. Similar criticisms emerged from the industry, which expressed fear that Europe’s regulatory environment may be less competitive if the U.S. deregulates. In addition, Germany’s central bank has repeatedly criticized the ECB for keeping interest rates low, claiming that German banks’ profits have been squeezed as a result. (See, for example, this recent Financial Times article.) Indeed, Europe is facing nationalist movements akin to those that some contend contributed to President Trump’s victory in the 2016 U.S. Presidential election, which could pressure leaders to push back on continent-wide financial mandates.