EU lawmakers seem intent on turning a recession into a depression by imposing absurdly high capital requirements which would serve to stifle lending at the worst time possible. This is one of the most obscene over reactions that I can imagine, and it is totally impractical for banks to raise that much capital when the governments of Spain and Italy are having trouble raising capital at reasonable terms.
Regulators in Europe and the United States need to understand that banking has existed and thrived for hundreds of years with less capital than they are currently requiring at a time when financing for small business and consumers is very tight. Lending is cyclical and the current loans being made are of very high credit quality and have attractive margins, but by continuously changing the rules the banks can have no confidence in extending credit to those that actually need it. While the LTRO successfully brought liquidity to the European banks, the goal of it in the eyes of policymakers was to buy the government debt. This simply buys time for the governments to make the structural changes needed to reform their fiscal health. Undermining confidence and reacting in a punitive and overzealous manner has hurt economic growth by stifling lending at the worst time possible. Fortunately it is likely this proposed law will get shot down but it is discouraging to see the same errors being made over and over again.