The European Central Bank has supported the proposals made by European Union that seek to tighten the regulatory grip on foreign banks in the bloc. 

The proposals are aimed at clarifying when foreign lenders can set up a unit in the region to offer core banking services such as deposits. 

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Banks based in the US, Switzerland, and the UK fear that the new proposal will force them to set up branches or subsidiaries in the bloc if they wish to continue serving their clients. 

According to Reuters’ report, the Europe’s central banking authority said that what falls under core banking needs to be more detailed.

Current norms allow national regulators in the European Union to have a say in when a foreign bank should set up a branch and the ECB seeks to have a clearer approach to this. 

In a blog post, ECB supervisor Frank Elderson said: “These regulatory differences create an unlevel playing field and prevent the ECB from having a clear overview of the activities of third-country banks in the EU. 

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“The Commission proposes to address these differences, strengthening the single market and minimising supervisory blind spots, thus rendering supervision more effective.”

The EU proposals also mention when a foreign bank branch should be converted into a subsidiary, which is subject to greater regulatory scrutiny and costs more. 

To this, the ECB said it should not be an ‘automatic’ process and should be based on assessments made by supervisors. 

A final decision on the proposal is yet to be made and the European Parliament and the members of the EU will have the final say on it.