EBA proposes comprehensive simplifications to the EU bank capital framework

The European Banking Authority (EBA) continues its effort to simplify and improve the efficiency of the EU bank capital framework. Following earlier proposals in April and a review in July 2024, the EBA has published a comprehensive report outlining proposals to reduce complexity while maintaining banks’ resilience and authorities’ tools.

The report builds on previous descriptions of the EU’s capital regime and the 2025 efficiency report, providing an overview of the implementation of capital requirements and buffers over the past decade. It suggests improvements to the design and interaction of these requirements without weakening the system’s resilience.

The proposals are guided by four principles: preserving overall resilience and capital neutrality, adhering to international standards, ensuring proportionality, and enhancing the Single Market’s efficiency. The report discusses recommended measures across three key areas:

• Simplified microprudential stack: Clarifies roles of Pillar 1, Pillar 2 requirements, and guidance; focuses supervisory tools on risks; removes macroprudential considerations; simplifies the leverage ratio stack by converting Pillar 2 requirement into a buffer and removing guidance.
• Simplified macroprudential stack: Combines countercyclical capital buffer and systemic risk buffer into a single releasable buffer supported by a common methodology; updates the O-SII framework with improved scoring and buffer calibration.
• Simplified resolution stack: Streamlines the MREL framework, aligns definitions of TLAC and MREL resources, and reduces operational complexity.

The report emphasizes coordination among authorities responsible for these instruments, although it does not detail this aspect. It aims to reduce regulatory layers and improve the overall effectiveness of the framework while maintaining the resilience of the European banking system.