Finance
Factbox-How is the ECB proposing to streamline bank rules?
Published by Global Banking and Finance Review
Posted on December 11, 2025
Last updated: January 7, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on December 11, 2025
Last updated: January 7, 2026
FRANKFURT, Dec 11 (Reuters) - The European Central Bank proposed simpler bank supervision rules on Thursday in an effort to prune excessively complex regulation without weakening overall capital requirements.
Below are some of the bank's key recommendations. They are still subject to European Union approval, which is normally a lengthy process.
For the full ECB release click here.
Recommendation #1
The number of capital stack elements could be reduced.
This could be achieved by merging the different capital buffers into two: a non-releasable buffer -- merging the capital conservation buffer and the higher of the other systemically important institutions (O-SII) and global systemically important institutions (G-SII) buffers -- and a releasable buffer -- merging the countercyclical capital buffer and the systemic risk buffer.
The Pillar 2 Guidance would be kept separate, on top of the releasable buffer.
Recommendation #2
The going-concern loss-absorbing capacity of the capital stack could be improved by adjusting the design or the role of Additional Tier 1 (AT1) and Tier 2 instruments.
Two alternatives can be considered.
First, the features of AT1 instruments could be enhanced to further ensure their loss absorption capacity in going concern and provide additional clarity to banks and investors on the going-concern loss-absorption properties of AT1 instruments.
Alternatively, non-CET1 instruments could be completely removed from the going-concern capital stack. This could be achieved either by fully or partially replacing them with CET1 instruments or by eliminating them without any replacement in the going-concern framework.
Recommendation #3
Proportionality should be increased by expanding the small bank regime to more lenders. This could be done by increasing the scope of eligible small banks through an increase of the 5 billion euro threshold of the small and non-complex institutions (SNCI) regime, as well as extending the scope of the simplified rules.
Recommendation #4
To simplify the macroprudential framework, the Governing Council recommends automatic reciprocation of macroprudential measures. This ensures all banks active in a country that applies a macroprudential measure will be subject to that measure.
Recommendation #5
The ECB proposes aligning minimum requirement for own funds and eligible liabilities (MREL) and total loss-absorbing capacity (TLAC) frameworks more closely – without reducing gone-concern resources – while reviewing their interactions with the going-concern framework.
Recommendation #6
It proposes refocusing EU prudential law from directives to
regulations, increasing harmonisation and regulatory transparency, and streamlining level 2 and 3 acts.
Recommendation #7
The ECB calls for the simplification of the EU-wide stress test, streamlining the methodology and increasing the usefulness of results from both a system-wide and bank-specific perspective.
Recommendation #8
It proposes making the ECB Governing Council responsible for taking a holistic view of the overall level of capital demand within and across the banking union, while fully adhering to the principle of separation.
Recommendation #9
The ECB encourages the finalisation of the savings and
investment union, including completion of banking union, to reduce national fragmentation and allow for more efficient capital markets.
(Reporting by Balazs Koranyi; Editing by Toby Chopra)
The European Central Bank (ECB) is the central bank for the euro and administers monetary policy within the Eurozone, aiming to maintain price stability.
Capital requirements are regulations that determine the minimum amount of capital a bank must hold to ensure its stability and solvency.
A capital buffer is a reserve of capital that banks are required to hold above the minimum capital requirements to absorb potential losses.
TLAC stands for Total Loss-Absorbing Capacity, which refers to the amount of capital and eligible liabilities that a bank must maintain to support its resolution in case of failure.
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