ECB Pushes for Simpler Bank Rules While Keeping Capital Demands Intact

The European Central Bank has proposed major reforms to simplify the EU’s banking rulebook, aiming to streamline supervisory requirements without reducing overall capital burdens. The ECB argues that reducing complexity should not weaken financial resilience, despite industry pressure for lighter regulations as seen in the U.S. and UK. The plan centres on merging several capital buffers into two core layers—releasable and non-releasable—while keeping guidance requirements separate.

Banking groups broadly welcomed the effort but warned that the proposals fall short of delivering the regulatory relief needed to boost competitiveness. German banking associations said the changes do not go far enough, particularly for small lenders, and urged the European Commission to move more decisively. European bank stocks nonetheless gained over 1% following the ECB’s announcement, outpacing wider market performance.

Beyond capital buffers, the ECB also called for reforms to AT1 convertible bonds, questioning whether these instruments truly absorb losses, and recommended an overhaul of EU-wide bank stress testing to make the process more effective. The proposals, backed by the ECB’s Governing Council, must now be reviewed by the European Commission, meaning any concrete changes could take months or even years to implement.

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