(Sept 23): Brussels is facing pressure to reassess its approach to its landmark banking competitiveness proposal, amid fresh political calls for the bloc to prioritise some elements of the package.

Germany has been privately pushing for the proposal to be split — an idea rejected by EU Financial Services Commissioner Maria Luis Albuquerque last week — according to people familiar with the matter. Economy Commissioner Valdis Dombrovskis is also in favour of dividing the plan by advancing work on reforms designed to cut red tape while postponing other more controversial elements such as a pan-European deposit insurance framework to a later date, people familiar with the matter said.

The dissent risks sparking divisions within the EU about how to move forward with its landmark banking package, which was unveiled by the European Commission, the EU’s executive branch, in July.

The initiative aims to revamp the EU’s banking system by reducing national barriers for pan-European banks as well as simplifying some parts of the capital structure and improving regulatory treatments for activities like trade finance. It comes as European lenders fear they are at a disadvantage compared to Wall Street rivals, which are riding high on a wave of deregulation in the US.

German Finance Minister Lars Klingbeil proposed a two-tier approach during a meeting of EU finance ministers last weekend, advocating that issues such as simplification should come first and more complex issues discussed in parallel, the people said.

That position is shared by Dombrovskis, the EU’s economy commissioner, according to people familiar with the matter, potentially setting up a clash within the EU’s executive arm about how best to progress the legislation. Dombrovskis, who is spearheading the commission’s efforts to cut red tape across different EU legislation, wants to split the package to concentrate on cutting bureaucracy first.

The calls to split the package put Germany and the EU’s top economy official in the same camp as the region’s banks, who have similarly called for a staggered approach.

Germany’s finance ministry told Bloomberg News that the country advocates giving “priority” to measures that “directly contribute to the goal of competitiveness and drive investment.”

“Experience has shown that structural issues related to the single market and the banking union are more complex,” the ministry added.

Germany has long opposed a European Deposit Insurance Scheme, which was first proposed in 2015 as part of the nascent banking union. While the EU ultimately agreed on a common resolution and supervision system for banks in the region, the pan-European deposit insurance idea remained stalled as some countries feared that their national deposit guarantee schemes could be used to bail out banks in other economies.

The latest calls for changes to the commission’s new banking proposal follow significant industry pushback.

Europe’s most powerful banks have been collectively leading a call to split up the package as they fear that wrangling over the deposit plan will jeopardise the entire package ahead of a slate of European elections next year.

Bloomberg reported on Tuesday that Europe’s biggest banks and lobbying groups are contesting key parts of a plan by the EU to revive the fortunes of the bloc’s financial system.

Lenders, lobbies and others submitted 121 responses to the European Commission, including calls for some elements to be dropped, fresh ones to be introduced and demands for swifter action.

The consultation feedback, sent by the Sept 15 deadline, highlights the complex path ahead for a package seen as vital to boosting Europe’s economic growth and financial sovereignty. Both the European Parliament and EU countries need to approve the proposal.

A commission spokesperson declined to comment.

Uploaded by Arion Yeow