Nagel defends bank capital, urges simpler rules for smaller lenders
Deutsche Bundesbank President Joachim Nagel defended post-crisis capital standards and called for targeted regulatory simplification for smaller lenders. Speaking in London on October 1, 2026, he argued that market fragmentation rather than capital requirements limits European bank returns.
Solvency drives profitability
European lenders proved resilient during the pandemic and 2023 banking turmoil because post-crisis reforms strengthened their balance sheets.
“Soundly capitalised banks are better banks,” Nagel said, citing research from the European Central Bank (ECB) and Deutsche Bundesbank showing that higher equity lowers funding costs by reducing earnings volatility.
Although US and UK institutions maintain higher price-to-book ratios and net interest margins, direct transatlantic rivalry in local corporate lending is rare.
Instead, competition concentrates in investment banking and trading, which account for a smaller share of overall regulatory capital requirements.
Tailoring rules to balance sheets
To tackle fragmentation, Nagel urged progress on the Savings and Investments Union through deeper securitisation markets.
He also called for regulatory proportionality ahead of European Commission proposals slated for the first quarter of 2027.
While integration waivers assist cross-border giants, smaller lenders need simplified compliance commensurate with their low risk profiles.
Nagel also flagged non-bank financial intermediaries, which hold half of global financial assets and represent 14 percent of German bank balance sheets.
Pragmatic plea meets structural inertia
Nagel rightly identifies fragmentation rather than capital rules as the real drag on European banking.
Yet carving out exceptions for local lenders risks entrenching the sector's inefficient domestic focus.
Without genuine cross-border consolidation, Europe will keep lagging US capital market depth.