ECB's Vujčić: Simpler Bank Rules, Not Weaker Capital, Key to EU Competitiveness
ECB Vice-President Boris Vujčić argues that streamlining EU bank regulation and deepening the Single Market matter more for competitiveness than cutting capital requirements.
Source: ECB
At the ESRB's 15th anniversary conference in Frankfurt, ECB Vice-President Boris Vujčić made a case that cuts against the loudest industry complaint: Europe's banks are not uncompetitive because their capital rules are too strict, and the fix is simplification plus genuine financial integration, not a broad rollback of prudential requirements.
Key Facts
Vujčić opened by recalling why the ESRB exists. The de Larosière Group recommended an EU-level macroprudential body in 2009, after the global financial crisis and Europe's sovereign debt crisis exposed how costly systemic failures can be. He cited estimates putting the median fiscal cost of a banking crisis at roughly 7% of GDP for advanced economies, noting that output, employment and investment losses extend well beyond that.
He acknowledged that the EU framework has grown too complicated. The ECB Governing Council proposed last year to simplify the capital stack, merging buffers into a non-releasable one (conservation plus G-SII/O-SII) and a releasable one (countercyclical plus systemic risk). It also suggested cutting the leverage ratio stack from four elements to two: a 3% minimum and a single buffer. For resolution, the ECB wants MREL and TLAC frameworks better aligned without reducing available resources, and a materially simpler, conservatively calibrated regime for smaller banks. The supervisory arm is discontinuing around 40 of more than 100 guidance documents.
On the evidence: the median euro area Tier 1 ratio has more than doubled, from about 8% in 2009 to over 16% today. Return on equity has climbed to historic highs since the pandemic, and the average price-to-book ratio is now near 1.5, well above its long-term median, narrowing the gap with US banks.
Analysis
Vujčić's core argument is that resilience and competitiveness are complements, not trade-offs. The industry contends that capital requirements constrain lending and that lowering them would restore competitiveness. He counters that the academic literature is mixed and state-dependent: studies finding negative credit-supply effects tend to cover the post-crisis period, when banks were weighed down by bad loans and weak internal capital generation.
That distinction matters for policy. If capital constraints bite hardest when balance sheets are already fragile, then blanket deregulation is the wrong lever. The better lever is complexity: fewer, clearer rules that deliver the same loss-absorbing capacity at lower compliance cost. Merging buffers and trimming the leverage stack is simplification, not weakening.
The price-to-book recovery is the strongest evidence he offers. European bank equity traded below book for years, signaling that investors doubted sustainable returns. That gap has narrowed since 2023, which suggests the market now credits the sector's stronger capital position and normalized monetary policy. Undervaluation was a competitiveness problem in itself, making equity issuance expensive.
Implications
For investors, the message is that EU bank profitability is being driven by resilience and rate normalization rather than by an expected capital holiday. A push to simplify rules could reduce compliance costs and lift returns on equity modestly, but it is unlikely to arrive as a headline cut to requirements. Watch the legislative follow-up to the Commission's banking competitiveness communication.
For policy, the emphasis on the Single Market is the real signal. Vujčić argues scale and integration drive competitiveness more than capital calibration. If cross-border consolidation remains politically blocked, simplification alone will not close the gap with US banks. The 3% leverage minimum and merged buffers are technical, but they set the direction: same resilience, less bureaucracy, deeper integration.
FAQ
Is the ECB proposing to lower bank capital requirements?
No. The ECB's proposals target complexity — merging buffers and simplifying the leverage and resolution frameworks — while preserving the overall level of resilience. Vujčić explicitly rejects the idea that cutting capital is the route to competitiveness.
Why does the ECB say EU banks are now more competitive?
Capital ratios have more than doubled since 2009, returns on equity have reached historic highs, and price-to-book ratios have risen to around 1.5, narrowing the valuation gap with US peers.
What does the ECB see as the real competitiveness driver?
Financial integration in a genuine Single Market, which allows economies of scale. Vujčić treats simplification as helpful but secondary to integration.