In a keynote speech at the 12th Conference on the Banking Union, European Central Bank (ECB) Supervisory Board member Pedro Machado argued that simplification should reduce regulatory burdens, particularly for smaller banks, without lowering capital standards. He identified national fragmentation as the main obstacle to European banks' competitiveness, with technology investment making economies of scale increasingly important. The speech reviewed supervisory reforms and recent proportionality proposals rather than announcing a new regulatory package. For smaller banks, Machado outlined proposals allowing national supervisors to raise the asset threshold for small and non-complex institutions from EUR 5 billion to as much as EUR 10 billion. Using a liquidation strategy in the resolution plan as the test of non-complexity would also broaden eligibility. Together, these changes could bring up to 85% of less significant institutions into the category, around 150 more banks than currently qualify. Supervision could become less intensive where risks permit, including intervals of two to three years between full Supervisory Review and Evaluation Processes and greater use of supervisors' own stress projections. From 2027, a dedicated category in the ECB's financial reporting framework would reduce required data points from around 13,500 to roughly 700. Proportionality should remain within the Single Rulebook and be supported by credible crisis management arrangements. For larger banks, Machado defended the output floor as a safeguard against internal models understating risk. He cited ECB estimates that applying US rules at the end of 2025 would have increased minimum required Common Equity Tier 1 capital for the largest euro area significant institutions by around 8%, excluding the leverage ratio. He also reiterated the case for merging macroprudential buffers into releasable and non-releasable tiers, consistent with the Governing Council's December 2025 simplification recommendations, while preserving protection against the underlying risks. Completing banking union and removing national barriers would support integration and consolidation, but achieving scale should not weaken supervision or banks' ability to be resolved.
ECB's Machado urges proportionate bank rules and market integration rather than lower capital standards
European Central Bank Supervisory Board member Pedro Machado urged proportionate supervision rather than lower capital standards in a keynote speech on banking union. He reviewed proposals that could extend the small and non-complex institution category to 85% of less significant institutions, alongside plans to reduce reporting requirements from 2027. He argued that market integration should help banks achieve the scale needed for technology investment while preserving capital backstops and effective resolution safeguards.