EU resists banks' plea for major overhaul of capital rules

The European Banking Authority has resisted calls from lenders for a sweeping rewrite of EU bank capital rules, instead proposing a narrower package of simplification measures it says would not reduce the system’s overall resilience.

The move, set out on June 16, 2026, comes after months of lobbying from the banking industry, which has argued that the EU framework is too complex and burdensome. Banks have pressed Brussels to do more to cut overlapping requirements and improve competitiveness, especially as regulators in the US and UK move toward looser rules.

EBA chair François-Louis Michaud said the regulator’s aim is to redesign the capital framework rather than lower capital requirements. He said the proposals would not affect the overall resilience of the banking system.

What the EBA proposed

One proposal would merge the countercyclical capital buffer and the systemic risk buffer into a single buffer that could be released in a crisis. The EBA also proposed simplifying leverage-ratio rules by removing the Pillar 2 guidance buffer for 23 banks in the bloc.

Those steps fall well short of the broader overhaul many banks had been seeking. The regulator said its report opens further avenues for future work, but it did not present the package as the final word on capital-rule reform.

ECB point of friction

The EBA also rejected a European Central Bank suggestion to disallow certain hybrid instruments. According to the Financial Times, that ECB idea could have created a €20.2 billion shortfall for lenders.

That disagreement underlines the debate inside Europe’s supervisory system over how far simplification should go. The EBA is willing to adjust the design of the framework, but not to reduce buffers in a way officials see as weakening loss-absorbing capital.

Why it matters

The stakes are significant for European lenders, which say the current framework creates duplication and adds compliance cost without improving safety. Their argument is that lighter, simpler rules would make it easier to compete with banks in the US and UK.

For policymakers, the challenge is to balance competitiveness against the post-crisis safeguards that were built after the 2008 financial crisis and the eurozone debt crisis. Any major rewrite of EU capital rules would have to answer fears that lower requirements could leave the system more exposed in a downturn.

The EBA’s decision suggests Brussels is more likely to pursue modest simplification than deregulation. That may disappoint banks looking for a bigger cut in capital burdens, but it keeps the broader reform debate alive.

What happens next

The European Commission is expected to consider its own proposals on bank competitiveness. EU lawmakers and supervisors will then decide whether the EBA’s simplification ideas become actual rule changes.

Banks are likely to keep lobbying for deeper cuts to overlapping buffers and reporting requirements. The next phase will determine whether the EBA’s design changes translate into meaningful relief or remain only a first step in a longer reform process.