European Central Bank rejects calls to lower capital requirements and highlights supervision streamlining

In an interview with MLex, European Central Bank Supervisory Board member Patrick Montagner pushed back against industry proposals to embed “competitiveness and growth” objectives into EU supervisory mandates and to reduce capital requirements, arguing that banking competitiveness primarily comes from resilience and the ability to keep providing services through stress. He rejected the idea of linking lower capital to lending conditionality or dividend restraint, saying capital is intended to keep banks safe rather than serve as a bargaining tool. Montagner said there was no need for additional lending because money is already flowing into the EU economy, and surveys of lenders and borrowers do not point to credit restriction driven by prudential regulation; the euro area bank lending survey shows tightening, but not due to regulation. On claims of an uneven prudential playing field with US banks, he said comparisons are difficult given differences in mortgages, insolvency and tax regimes, and that any competitive issues are mainly cited in certain market activities such as those covered by the Fundamental Review of the Trading Book, which also includes reporting provisions. He added that the ECB does not see too much capital in the system and that lowering capital buffers is not the right way to improve bank profitability. Instead, supervision is implementing the ECB’s “Streamlining supervision, safeguarding resilience” work, including efforts to streamline processes, focus on main risks and introduce a fast-track process for significant risk transfer securitisations.