European Central Bank Vice-President Boris Vujčić stated that while European banks maintain strong balance sheets and profitability, the regulatory framework has grown overly complex and burdensome over the past 15 years. Speaking at the 10th annual conference of the European Systemic Risk Board in Frankfurt am Main, Vujčić argued that simplifying rules rather than reducing capital requirements is the key to fostering a prosperous and competitive financial sector.
Vujčić noted that median fiscal costs of banking crises have historically reached around 7% of gross domestic product in advanced economies, accompanied by persistent losses in output, employment, and investment. He defended post-crisis capital standards against industry claims that requirements constrain credit, noting that euro area median Tier 1 ratios have doubled from approximately 8% in 2009 to over 16%. Return on equity has risen to historical highs, and average price-to-book ratios have climbed to around 1.5, narrowing the valuation gap with US institutions.
To address industry concerns without compromising stability, the ECB Governing Council has proposed concrete high-level recommendations to streamline the European Union's regulatory, supervisory, and reporting frameworks. The proposals include merging capital buffers into two distinct categories—a non-releasable buffer and a releasable buffer—and simplifying the leverage ratio framework by moving from a four-element capital stack to a 3% minimum requirement alongside a single leverage ratio buffer.
Additional recommendations involve closely aligning resolution requirements for minimum requirement for own funds and eligible liabilities with total loss-absorbing capacity standards, while introducing a dedicated, conservative, and materially simpler regime for smaller, non-complex institutions. Parallel to legislative efforts, European banking supervision is pursuing internal efficiency gains, including the planned discontinuation of roughly 40 out of more than 100 supervisory guidance documents.
Vujčić emphasized that true competitiveness extends beyond capital rules and relies on financial integration within a genuine Single Market to foster economies of scale. He maintained that strong capital positions remain a strategic advantage for Europe as a prerequisite for sustainable economic growth.
