The EBA calls for more long-term approaches in banks

The European Banking Authority (EBA) has called on banks to consider long-term horizons in their strategies and business activities after pressures on short-term goals.

In a newly published report on undue short-term pressures from the financial sector on corporations, the regulator identified troubles being caused by focusing on short-term goals.

Its has assessed the presence and drivers of short-termism by looking at short-term pressures exerted by banks on corporate clients and similar pressures facing banks from their shareholders. Furthermore, it assessed whether banking regulations play a role in exacerbating or mitigating short-termism.

The EBA uncovered concrete evidence of short-termism and highlighted a need to promote long-term approaches.

Following this, it has supplied policy recommendations advocating policy action should aim at providing relevant information and incentives for banks to incorporate long-term time horizons in their strategies, governance, business activities and risk management.

Its recommendations to the European Commission and EU legislators include the maintenance of a robust regulatory prudential framework as a pre-condition for long-term investments. The EBA also called for the adoption of longer-term perspectives by institutions through more explicit legal provisions.

Other recommendations include the enhancement of disclosures of long-term risks and opportunities and improving information flows, data access and support for the banking sector around sustainability challenges and environmental, social and governance risks.

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