Proportionality in banking regulation: a cross-country comparison

The regulatory response to the 2007-09 international financial crisis resulted in a more robust but also more complex regulatory framework. This has triggered discussions on the principle of "proportionality", ie on how best to tailor regulatory requirements to non-internationally active banks, especially smaller and less complex ones. This note compares the proportionality approaches that have already been applied, or are planned, in six jurisdictions: Brazil, the European Union, Hong Kong SAR, Japan, Switzerland and the United States. These approaches differ considerably, in terms of criteria and the thresholds used to decide which banks are subject to a specific set of rules, and also in terms of the regulatory standards that are subject to a proportional implementation. The "proportionality strategy" should acknowledge the limits posed by other relevant policy objectives. In particular, regulators must weigh the implications for financial stability and for the domestic competitive environment. Policy choices must face complex trade-offs in this respect. It would seem reasonable to aim for a proportional compliance and reporting burden for smaller and less complex banks but without jeopardising their minimum desired solvency and liquidity. In other words, proportionality should entail rules that are simpler but not necessarily less stringent.