José Manuel Campa interview with Les Echos: Basel III is a good reform, we must go through with it

‘Basel III is a good reform, we must go through with it’, urges the European Banking Authority

While Trump brandishes the threat of deregulation on the other side of the Atlantic, José Manuel Campa, Chair of the European Banking Authority, which is responsible for implementing banking regulations at EU level, defends the reforms adopted after the financial crisis. ‘As much as I am in favour of simplification, I am equally opposed to any deregulation’, he says.

As a mainstay of the EU supervisory framework, the European Banking Authority (EBA) is at the heart of the EU’s competitiveness issues raised by the Letta and Draghi reports. Created in 2011 to respond to the financial crisis, the EBA, previously located in London and moved to Paris since Brexit, is responsible for implementing and harmonising banking regulation at EU level.

While Donald Trump threatens deregulation on the other side of the Atlantic, EBA Chair Jose Manuel Campa defends the Basel III international agreement, adopted in the wake of the financial crisis, while acknowledging that Europe could act on market risk requirements, which are the most sensitive in terms of international competition. He also supports better supervision of private debt.

Are we witnessing a fragmentation of the Basel III agreement, which was adopted in the wake of the financial crisis?

I would not call it fragmentation. Its implementation is, for the time being, delayed or uncertain in certain jurisdictions. In Europe, this agreement has been applied since January 2025, with a transition phase until 2032. For its part, the United States made a first proposal two years ago, launched a consultation and announced that it would return with a new proposal in view of the feedback. With the arrival of the new administration, the directors of the main regulatory agencies are now being replaced.

Have you perceived any signals from the US since the election of President Trump?

We believe that the US authorities will indeed submit a new proposal, but this remains uncertain. The regulatory experts with whom we speak have told us that they remain committed to this agreement. It should be borne in mind that the first proposal made by the US two years ago went beyond the scope outlined in the Basel III framework – the so-called ‘gold plating’ on lending. If they opt to return to the original agreement, this would be already quite satisfactory.

Should Europe review its minimum requirements for market risk, the FRTB?

This is indeed the most sensitive issue for international markets. The elements currently in place, concerning credit risk, mortgage lending, consumer lending and loans to SMEs, are truly specific to each country. These elements play no role in international competition.

The question can be framed differently with regard to market risk. Europe has already postponed the FRTB by one year, and can postpone it again, as the United Kingdom has done, until 2027. We must wait and see what the European Commission decides. We will continue to fight for this agreement because it guarantees open financial markets at the international level. This is a good reform, we must go through with it. As much as I am in favour of simplification, because the banking sector has been burdened by increasing regulation since the financial crisis, I am equally opposed to any deregulation.

Are you in favour of further consolidation in the EU banking sector?

Over the past decade, the European Banking Agency has been working on building a single market for the banking sector. This includes the creation of a single supervisor within the ECB. We support any initiative toward a more efficient and integrated single market. We need to make sure that good banks succeed and bad banks fail. It will be a positive development if consolidation goes in this direction. Our role at the EBA is to ensure that the banking union is genuinely effective. To do so, we need to make progress on ongoing reforms, such as the deposit insurance.

In Europe, things are moving in two directions: on the one hand, simplification, and on the other, the single market in financial services. 

What should be the next step for the banking union?

I am optimistic because we are starting a new 5-year cycle within the EU. The Draghi and Letta reports have clearly laid the foundations for the debate, and Trade Commissioner Valdis Dombrovskis has set the course for this year. Things are moving in two directions: on the one hand, simplification, and on the other, the single market in financial services. So far, the most progress has been made in the area of banking union. We need to get the job done!

Should the ceiling on bonuses be abolished?

Under the legislation, bonuses must be aligned with the bank’s long-term strategy and risk profile, and paid over time under the deferral rule. This is the most important, as in reality the ceiling concerns only a very small proportion of staff in financial institutions. I do not think that the ceiling should be abolished because there is a broad consensus over it.

Are banks vulnerable to a trade war?

What could affect banks most is the indirect impact that political tensions could have on their customers, particularly businesses. The latter could invest less, or be forced into financial difficulty or even bankruptcy. Such a chain of contagion is to be feared.

Our concern also stems from the fact that we lack information on non-financial intermediaries. Where non-bank companies engage in activities similar to those of banks, without the same level of risk management, this may lead to systemic risk.

Should private debt be further regulated?

The question is not whether the same activities should be subject to the same regulation and whether private lending should be regulated in the same way as banks, but rather whether these activities generate the same risks. The principle of banks is that they manage loans and deposits with different maturities. Hence the need for supervision. Private credit actors should be regulated to the extent of the risks they incur. We are only at the stage of data discovery concerning private credit actors and their interconnection with the financial system. Even the United States has become aware of the issue. The Financial Stability Board (FSB) is keeping a close eye on this.

We do not have a sufficiently deep financial intermediation market. It has even grown shallower following Brexit. 

Is private debt taking market share from the banks in terms of financing?

In terms of market share in loans to households, SMEs and consumer loans, there has been no real change. Private credit has gained ground in the corporate and investment banking market, mainly for large companies.

At the same time, private debt may limit the risk of a ‘credit crunch’, i.e. limited or difficult access to credit for certain parts of the economy. I would rather say that, in Europe, we do not have a sufficiently deep financial intermediation market. It has even grown shallower following Brexit. This means that we need to further develop the Savings and Investments Union, as well as market financing that is complementary to the banks. In Europe, we have a lot of savings. We save more than we invest. However, a large part is either invested outside the European Union or managed by investment firms located outside the European Union.

The interview was conducted by Ingrid Feuerstein and Krystèle Tachdjian

Les Echos (France)