Strong banks crucial for European competitiveness, Buch states
Claudia Buch, Chair of the Supervisory Board of the European Central Bank, emphasized that strong regulation and supervision are essential for banks' resilience and their ability to foster economic competitiveness and growth. Speaking at the LSE Forum on Financial Supervision, she outlined key policy priorities.
Regulation and resilience: the competitive edge
Claudia Buch highlighted that robust regulation and supervision are fundamental to strengthening banks' business models and their capacity to serve the economy.
Post-financial crisis reforms have led to more resilient and better-capitalised banks, enabling them to continue financing European corporates.
However, geopolitical uncertainty is impacting credit markets, potentially tightening lending standards and weakening demand.
To streamline the framework, the Governing Council of the European Central Bank (ECB) recently provided recommendations to the European Commission on simplifying banking regulation, supervision, and reporting.
Buch stressed that any simplification must uphold current resilience levels and align with international prudential standards.
These efforts aim to enhance the efficiency and effectiveness of supervision, making it more risk-based.
Four pillars for a level playing field
Buch highlighted four policy priorities for the banking sector: ensuring a global level playing field for competition, promoting cross-border financial services, upholding strong capital standards, and completing the banking union with EDIS.
She clarified that competition occurs between individual institutions, not entire systems, emphasizing the need for broadly aligned global rules from the Basel Committee (BCBS) and the Financial Stability Board (FSB).
While global rules set minimum standards, national specificities can be addressed, but policymakers share responsibility to uphold common minimums to prevent financial instability and avoid the temptation to relax rules for short-term gains, which historically leads to higher fiscal costs and output losses during crises.
Capital: not a cost, but an asset
The argument that higher capital requirements hinder competitiveness is not supported by evidence.
Capital serves as a stable funding source, absorbs losses, and enables banks to lend more, particularly in the long term and during stress.
It is crucial for investing in IT infrastructure and maintaining competitiveness against non-bank digital providers, ultimately enhancing financial stability.