EBA proposes simpler EU bank capital, resolution rules

The European Banking Authority's report proposes targeted changes to streamline the EU bank capital and resolution framework.

It aims to reduce unnecessary complexity, improve consistency, and enhance predictability without compromising financial resilience or supervisory action.

The EBA emphasizes four guiding principles: maintaining capital neutrality, adhering to international standards (Basel Committee and FSB), ensuring proportionality for both large and small institutions, and deepening the single market.

The report does not advocate a fundamental redesign but focuses on specific adjustments to the framework's design, rather than its calibration.

It recommends preserving the existing microprudential toolkit, ensuring Pillar 1 covers only micro risks, and maintaining Pillar 2 requirements (P2R) for risks not sufficiently covered by Pillar 1. The role of Pillar 2 guidance (P2G) is also reaffirmed.

A decade after the Great Financial Crisis, EU/EEA institutions are stronger, safer, and more resilient, thanks to a robust regulatory framework.

However, the implementation of these international standards, particularly the 'Final Basel 3' package, has introduced significant complexity.

The EBA's report addresses this challenge, noting that while the framework is robust, its intricate nature can hinder efficiency and predictability.

The current structure, with its various 'capital stacks' and overlapping requirements, has prompted calls for simplification to ensure the framework remains effective and proportionate for all institutions, from global systemically important banks to smaller entities.