European Union resists banks' push for sweeping overhaul of capital rules

The European Union resisted calls from banks for a broad overhaul of its capital rulebook, while the European Banking Authority on 16 June set out what it called “targeted” and “balanced” proposals to simplify the bank capital framework without weakening the sector’s resilience.

EBA PLAN LIMITED TO SIMPLIFICATION

The EBA’s report outlined options for limited changes to how bank capital is structured, including merging some buffers and streamlining leverage ratio requirements, without changing the composition of capital. The EBA said the proposals aim to reduce complexity while preserving banks’ resilience and resolvability as well as authorities’ tools.

Europe’s banks had urged simpler rules the previous week to help them finance growth, citing a widening €1.4 trillion annual investment gap. Banks had been primed not to expect major changes after the European Central Bank earlier proposed streamlining rules without easing overall capital requirements.

The EBA said the report sets out detailed recommendations to reduce the number of regulatory layers and stacks. The EBA's recommendations include combining the countercyclical capital buffer and the systemic risk buffer into a single releasable buffer, converting the leverage ratio Pillar 2 requirement into a buffer and removing leverage ratio guidance, and streamlining the MREL framework, including aligning TLAC and MREL definitions.

NEXT STEPS

It would be for the European Commission to take the proposals forward. The Commission is due to publish an assessment of bank competitiveness in July, which is likely to factor in the EBA’s work, Reuters reported.

Any changes would require legislative scrutiny and take a number of years to implement.

Sources: Financial Times; European Banking Authority; Reuters