ECB debates the publishing of a report for EU banks' capital requirements

As part of the research, the ECB shows that the capital requirements for EU lenders are set to increase by a double-digit percentage if the same rules that US financial institutions implement apply. Several senior representatives at the ECB are pressing for it to publish the report, or a few of its findings, to mitigate heavy lobbying by the banking sector to minimising rules implementing the Basel agreement on world capital requirements in the industry.

Moreover, EU financial institutions’ pressure is set to scale if the US tempers or even leaves plans to implement the Basel rules on its banks during a projected movement towards deregulation after Donald Trump’s victory in the presidential election. As an overhaul of bank regulation, the supposed Basel III package was agreed by supervisors globally at the beginning of the 2008 financial crisis, with it aiming to limit how much lenders can leverage their models to make their balance sheets seem more solid than they would actually be.

The ECB’s research

Completed in 2023, but never published, the ECB’s research analysed the potential consequences for EU bank capital requirements if they were subject to current US prudential regulations. In Frankfurt, representatives discovered that for the largest EU banks, applying US rules would scale their minimum capital levels by a double-digit percentage. This information was provided by two individuals briefed on the report, according to Financial Times. Additionally, the largest lenders in the EU and the US are required to meet more capital requirements considering other systemic importance, and the impact their collapse could have on global finance.

Furthermore, among the ECB’s officials, some are still reluctant to publish the regulator’s findings due to them coming from multiple assumptions that are liable to challenges from the banking industry. Policymakers think that those difficulties could lead to counterproductive disputes between lenders and the central bank’s supervisors. At the same time, some officials believe that the report is relatively based on confidential data, which poses complexities to the publication. When asked to comment on the matter, the ECB declined.

Additionally, the EU regulation to impose Basel was finalised in 2024, being set to be phased in over the next eight years. The European Banking Authority estimates that it can scale minimum capital requirements for large and internationally active EU banks by 8.6% and increase them for the largest few banks classed as systemically important by 12.2%.