How regulations are forcing banks to open branches

I wandered back into the old world of EU regulations the other day in Switzerland, debating CRD VI and the demand that banks must have branches in every EU country when they offer full service banking, including deposits and lending. Well, that’s one interpretation. The whole thing is about the new Capital Requirements Directive, the sixth one, which comes into full force in 2026. Article 21c of CRD VI introduces a significant change by imposing a ban on third-country institutions providing core banking services (lending, guarantees, commitments, and deposit-taking) into the EU on a crossborder basis without a physical presence.  You can find out a lot more here.

The Swiss folks weren’t happy about this and Zurich University organised a whole day debating the topic. For some reason, they included me! You can see the record of the whole day at the end of this blog entry, but here was my two-penneth worth:

Chris Skinner delivered a compelling "Call to Action," urging a critical reassessment of the prevailing trends in crossborder financial services regulation. Skinner began by drawing a historical parallel between the EU's past efforts to integrate businesses and the current trend towards erecting regulatory "walls" that hinder crossborder activity.

He questioned the authority and accountability of regulators, particularly in the context of emerging technologies like crypto assets, where trust is often placed in decentralized networks rather than centralized institutions.

Skinner then presented a thought-provoking analysis of the contrasting approaches to innovation and regulation adopted by different regions of the world. He characterised America as a hub of innovation, China as a fast follower and imitator, and Europe as a region primarily focused on regulation.

He argued that this misalignment in regulatory and supervisory levels creates opportunities for regulatory arbitrage, where financial institutions exploit differences in rules to their advantage.

Skinner said that in his view successful economies have historically thrived by maintaining open markets for both trade and finance. He emphasised the benefits of foreign financial products and services, including increased competition, spurring innovation, expanding investor choice, and contributing to financial stability through diversification. Furthermore, Skinner cautioned against the unintended consequences of closing markets, asserting that it does not strengthen the hand of EU supervisors but rather pushes financial activity to less regulated jurisdictions, thereby increasing systemic risk and making potential crises more difficult to contain.

Skinner concluded his "Call to Action" with three concrete proposals based on collaborative brainstorming:

1. We must insist on a clear justification for restrictions to crossborder financial services and be much more rigorous in challenging these justifications.
2. A more rigorous intellectual framework is needed based on the proportionality principle.
3. Swiss authorities need to have an open dialogue about how appropriate this open border policy is now.

You can read the fuller report below.