Montagner warns against easing bank capital requirements
European banks remain resilient against higher interest rates and sovereign bond volatility, but regulatory capital standards must not be watered down, according to ECB Supervisory Board member Patrick Montagner in an interview with Les Echos.
Balance sheets absorb higher rates
Higher interest rates affect both sides of bank balance sheets, increasing funding costs across deposits and debt markets while compressing margins, Patrick Montagner explained.
Residential mortgage lending remains especially sensitive to price changes.
Sovereign bonds account for roughly 9 percent of euro area bank assets, an exposure Montagner described as “relatively limited” because banks actively hedge duration risk and face no obligation to sell.
He noted that widening spreads do not currently threaten supervised lenders.
Unlike the 2008 crisis, bank capital consists overwhelmingly of Common Equity Tier 1 rather than subordinated debt, supported by strong profitability.
Defending the Single Rulebook
Addressing European competitiveness, Montagner supported streamlining overlapping regulatory layers that complicate supervisory oversight.
However, he firmly rejected proposals to dilute prudential requirements or fragment the Single Rulebook by bank size.
He insisted that the Basel output floor must be preserved, warning that any reduction in capital demands would send the wrong signal while geopolitical tensions, energy volatility and artificial intelligence introduce new macroeconomic uncertainties.
Firm line on capital relief
Montagner offers a pragmatic compromise by endorsing regulatory streamlining while firmly resisting deregulation.
His defense of the Single Rulebook correctly prioritizes solvency over political calls for competitiveness.
Yet downplaying sovereign spread risks seems optimistic if fiscal strains escalate.
Source: Patrick Montagner: Interview with Les Echos
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