European Central Bank Vice-President Boris Vujčić backed simplifying bank rules without lowering overall capital resilience. In a speech on 2 October, he reiterated a two-buffer capital structure, closer alignment of bank resolution standards and a proportionate regime for smaller lenders. He argued that complexity could be reduced while keeping the loss-absorbing resources available in stress. The recommendations concern prudential regulation and supervision rather than a change in monetary policy.
Vujčić delivered the remarks at the tenth annual conference of the European Systemic Risk Board in Frankfurt. He said European banks’ median Tier 1 capital ratio had risen from about 8% in 2009 to more than 16%, while stronger profitability had increased capital headroom. He also said recent lending conditions reflected demand, risk perceptions and economic uncertainty more than binding capital constraints. Reuters reported that he rejected calls to treat lower capital requirements as the route to greater competitiveness.
TWO-BUFFER CAPITAL STACK
The risk-based structure would combine the capital conservation and systemic-institution buffers into one non-releasable buffer. A second, releasable buffer would combine countercyclical and systemic-risk requirements. The ECB has also recommended reducing the leverage-ratio framework to a 3% minimum requirement and a single leverage-ratio buffer.
For resolution, the plan would align the EU minimum requirement for own funds and eligible liabilities more closely with the international total loss-absorbing capacity framework. Vujčić said the change should simplify overlapping requirements without reducing resources available if a bank fails. A separate, conservatively calibrated regime would give smaller and less complex institutions greater proportionality.
INTEGRATION REMAINS THE GOAL
Vujčić said simpler rules alone would not solve Europe’s banking competitiveness problem. Cross-border lending to non-financial companies within the euro area accounts for about 16% of corporate lending, below the roughly 20% extended to borrowers outside the currency bloc. He linked greater scale to completing the banking union, advancing capital-market integration and reducing national differences in tax and insolvency rules.
The speech restated earlier ECB recommendations and supported current European Commission work on banking-sector competitiveness, but it did not itself change binding rules. The next milestones will be the legislative treatment of the recommended capital and resolution simplifications and the supervisory programme to retire or streamline guidance. Any final framework will need to show that reduced complexity does not weaken resilience or the resources available in resolution.