ECB's Machado warns against softer capital requirements for banks

ECB Signals No Softening of Capital Requirements for Europe's Banks

ECB Stance on Capital Safeguards and Regulatory Simplification

Regulators Resist Dilution of Post-Crisis Safeguards

FRANKFURT, Nov 3 (Reuters) - European banks should not expect regulators to dilute key post-crisis capital safeguards as part of efforts to simplify banking rules, European Central Bank supervisor Pedro Machado said on Tuesday, arguing that such backstops prevent lenders from understating risks. 

Debate Over Red Tape and Lending

As Europe debates how to reduce red tape and boost lending, Machado pushed back against calls from parts of the banking industry to lower the capital requirements introduced after the global financial crisis of 2008.

The Role of the Output Floor

In particular, he defended the "output floor", a global rule that limits how much banks can reduce capital requirements by using their own internal models to quantify risks.   

"We should uphold rigorous capital standards, preserve the role of the output floor as a backstop to internal models and continue to address the costs of resolution, so that scale does not come at a cost to the taxpayer," he told a financial conference.

Industry Lobbying and Competitive Concerns

European lenders have stepped up lobbying for lighter rules, arguing that they face a competitive disadvantage against US rivals and that easing requirements could unlock more financing for the economy.

Questioning Economic Benefits of Lower Requirements

But Machado said studies provide little evidence that lower capital requirements would generate meaningful economic benefits and questioned claims that large US banks operate under a substantially lighter regime.

Targeted Relief for Smaller Lenders

He reaffirmed, however, the ECB's support for targeted relief for smaller lenders that would reduce reporting and supervisory burdens on them without lowering prudential standards.

(Reporting by Francesco Canepa; Editing by Andrew Heavens, Kirsten Donovan)