The International Capital Market Association (ICMA) published a new position paper on EU banking competitiveness ahead of legislation, highlighting the essential role of banks in supporting deeper, more liquid and resilient European debt capital markets.

The paper argues that banking competitiveness and capital market development must be treated as a single policy challenge. Banks are central to bond underwriting, market-making, hedging and repo financing, yet overlapping regulatory requirements can constrain their capacity to support these activities.

ICMA calls on policymakers to address overlapping regulatory constraints and thus help increase banks’ usable balance sheet capacity for market-making, underwriting and repo financing, while maintaining robust prudential safeguards.

Reforms should be built around three priorities: scale, simplicity and capacity. Its recommendations include:

-Strengthening bond market-making and underwriting capacity by addressing regulatory constraints on banks’ ability to deploy balance sheets efficiently.

-Enhancing the depth, efficiency and resilience of repo markets through more risk-sensitive prudential requirements and improved collateral management.

-Simplifying and aligning regulation by reducing unnecessary duplication, improving international consistency and removing barriers to cross-border market activity.

Specific to repo, ICMA said the European Commission should:

-introduce greater risk sensitivity into the Standardised Approach for securities financing transactions, including recognition of effective maturity and legally enforceable netting; 

-facilitate cross-product netting and portfolio-level risk management;

-review the prudential treatment of sponsoring and agent clearing banks;

-address disproportionate barriers to greater central clearing by banks and non-banks, while avoiding disincentives for sponsoring, agent and client-clearing banks;

-revise the LCR treatment of contractually terminable open reverse repo; 

-and assess the combined effect of capital, leverage and liquidity requirements on banks’ capacity to intermediate repo.