Europe reopens bank rules introduced after the 2008 crash as financial risks rise

New paper proposes simplifications to cut complexity, not resilience

Nearly two decades after the financial crisis, Europe is moving into a new phase of banking reform, with a review of post-crisis rules underway. A new Finance Watch paper proposes a simpler capital framework that is easier to supervise, harder to game, and makes banks more resilient.  

The financial industry’s proposals to cut safeguards undermine EU objectives. Instead, Finance Watch proposes a constructive simplification package:

• Raise leverage ratio requirements so that leverage and risk-based requirements play more balanced roles in the capital framework.

• Simplify overlapping capital layers so buffers are clearer and useful when needed

• Phase out the regulatory use of over-complex internal risk models 
• Support small and non-complex banks with a genuinely simpler prudential regime 

With the European Commission’s consultation on banking competitiveness now closed, the EU will quickly advance on its project to simplify banking rules. Any changes to these post-crisis rules should remove undue complexity but ensure banks are better able to withstand shocks and support the real economy. With external and internal threats to the EU’s banking system on the rise, now is not the time to cut capital, nor is there any economic need to. As the ECB Governing Council said on 14 April in its own response to the consultation, “moves to simplify regulation must tackle undue complexity without weakening resilience”. 

Finance Watch calls on the Commission to resist proposals to weaken prudential rules or offer one-off capital reliefs, which will not support the EU’s stated objectives. At a time of rising geopolitical and financial risks, only resilient banks can support durable, productive lending. Cut the clutter, not the safeguards.

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