European Financial Stability, Financial Services and Capital Markets Commissioner Jonathan Hill speaking before the Securities industry and Financial Markets Association (SIFMA) in New York. Photo: Mike Segar/Reuters

The EU will continue to diverge from global banking regulations where necessary to avoid overburdening smaller lenders, the bloc’s financial services chief said yesterday.

European commissioner Jonathan Hill, in the job since November, said he would extend his predecessor’s policy of tailoring global banking rules where justified.

The EU was singled out last December by global banking regulators for departing from some elements of the internationally agreed Basel III capital rules designed to make the financial system safer.

The rules also aim to aid comparison of banks from across the world, but discrepancies make this harder.

Hill said he would “differentiate” from other Basel rules, too, in an effort to ensure that EU legislation is proportionate and takes into account different business models at banks across the 28-country bloc.

“I don’t want to burden smaller, lower-risk institutions with the same requirements we need for bigger, riskier ones,” Hill told a financial conference in Brussels. “Looking ahead, I am keen to build on this policy of differentiation.”

Two key decisions on banking rules loom.

Hill has to decide by the end of next year whether all EU banks should be set binding leverage ratios, a broad measure of capital to assets that are not risk-weighted.

Basel, which calls for a binding ratio, is deliberating over what level it should be set at. The global body also wants to set a net stable funding ratio, requiring banks to hold a buffer of long-dated bonds to cover potential liquidity crunches.

“In both of those areas, differentiation would be crucial,” Hill said.

Global regulators are finalising a separate rule to force the world’s top 30 banks, including Deutsche Bank, Société Générale and HSBC, to issue bonds that can be written down if the lender gets into trouble.

Hill said he will first check whether the final detail of the global plans are “coherent” with a similar requirement the EU has already passed into law.

Brussels has argued that it needs to tailor Basel rules because they are being applied to several thousand lenders in Europe while other parts of the world, such as the US, apply them only to their biggest banks.