Move comes as EU executive pushes to boost sector's ability to compete with larger US firms
The European Commission has proposed reducing the capital requirements for the EU’s banks, in a move aimed at overhauling the regulatory framework introduced after the 2008 financial crisis.
In a communication published on Friday, the EU executive called for the removal of so-called Pillar 2 capital requirements related to the leverage ratio, which are bank-specific buffers that supervisors can demand on top of industry-wide minimum Pillar 1 standards. They are typically imposed to mitigate a specific lender’s perceived extra level of risk.
Pillar 2 requirements and guidance involve “possible overlaps with other requirements which can lead to double counting”, the Commission said, adding that “concerns” have also been raised about the “limited transparency in the methodologies used to set Pillar 2 requirements”.
The proposal, detailed in the Commission’s much-anticipated report on the EU banking sector’s competitiveness, comes as part of broader efforts by Brussels to reduce fragmentation in the bloc’s banking sector and boost lenders’ ability to compete with much larger US firms.
