In an introductory statement to the European Parliament’s Committee on Economic and Monetary Affairs, European Central Bank Banking Supervision Chair Claudia Buch set out a reform agenda for the EU banking sector that pairs simplification and deeper market integration with unchanged emphasis on prudential resilience. She argued that reforms should reduce unnecessary complexity in regulation and supervision, support completion of the banking union and the Single Market, and preserve strong supervisory and regulatory standards as banks face materialised geopolitical shocks and growing cyber and artificial intelligence related risks. Buch said euro area banks currently remain robust, with strong capitalisation and low non-performing loans, but warned that weaker growth and rising insolvencies may take time to feed through to asset quality. Banks should therefore assess the effects of recent shocks and structural changes on borrowers, collateral and loss-absorbing capacity, particularly as fiscal space may be more limited. She also argued that evidence does not support claims that adequate capital requirements undermine competitiveness or lending, noting that Common Equity Tier 1 requirements are broadly unchanged in 2026 relative to 2019, the sector has capital headroom, and payout ratios are around 50%. On operational resilience, she said more than 85% of supervised banks use AI tools and that newer frontier models could intensify cyber threats, requiring stronger IT governance, cyber risk management, outsourcing controls and sustained multi-year investment. ECB supervisory work, including cyber resilience stress testing, on-site inspections and threat-led penetration tests, has identified weaknesses in core cybersecurity controls that banks need to remediate alongside their obligations under the Digital Operational Resilience Act. On the reform side, Buch pointed to ECB proposals to simplify the EU capital framework without weakening resilience, including reducing and further harmonising the macroprudential buffer stack while retaining Pillar 2 requirements and guidance, the leverage ratio and the Basel output floor. She said the ECB’s new methodology for Pillar 2 requirements is intended to clarify its interaction with Pillar 1 and avoid overlap. She also highlighted ongoing supervisory changes including clearer priorities, more targeted communication of findings, faster decision-making, more risk-based on-site inspections, review of supervisory guides, and greater proportionality and reporting relief for small and non-complex institutions. As part of completing the banking union, she reiterated support for a European deposit insurance scheme and for cross-border movement of capital and liquidity within banking groups subject to safeguards in stress.
European Central Bank - Banking Supervision2026-07-02
European Central Bank Banking Supervision outlines EU banking reform agenda while keeping capital and cyber resilience safeguards
In remarks to the European Parliament, European Central Bank Banking Supervision’s Claudia Buch outlined an EU banking reform agenda centred on simplifying rules and deepening banking union without weakening prudential safeguards. She argued euro area banks remain well capitalised, that capital requirements are not constraining lending, and that banks must step up investment in cyber and AI-related operational resilience. The statement also backed further harmonisation of buffers, the ECB’s revised Pillar 2 methodology, and eventual introduction of a European deposit insurance scheme.