ECB Refuses to Lower Bank Capital Requirements
N.R. Finch
The ECB on Thursday flatly rejected banks' push to lower capital requirements, with supervisory chief Buch saying current standards have not constrained lending — and banks still pay out roughly 50% of profits as dividends. Europe will not follow the US deregulation path.
What exactly did the ECB reject?
European banks want the ECB to lower capital requirements — the mandatory "safety cushion" banks must hold rather than lend or invest — arguing that US deregulation puts them at a competitive disadvantage.
ECB Supervisory Board Chair Claudia Buch shut that down at a European Parliament hearing: "There is no evidence that capital requirements have hurt competitiveness or lending capacity."
This means → the ECB's position is unambiguous: capital levels are the floor, and lowering them is off the table.
Are banks actually short of money to lend?
Buch offered two rebuttals: post-crisis capital hikes have not weakened lending, and euro-area banks are well-capitalised enough to maintain a dividend payout ratio of roughly 50%.
In plain terms = if capital rules were truly strangling banks, they could not afford to hand half their profits to shareholders. Generous dividends are proof the money is there.
This reflects a key card the regulator holds: the banks' own financials do not support the "crushed by regulation" narrative.
The US is easing rules — why won't Europe follow?
Over the past year the US government has steadily loosened bank regulation, prompting European banks to demand the ECB match the move for competitive fairness.
Buch drew a clear line: the calculation methods behind capital requirements can be simplified, the number of buffer layers can be streamlined, but the capital level itself stays.
This means → the ECB is willing to subtract complexity from "how you calculate" but will not budge on "how much you hold" — procedural simplification is open for discussion, substantive capital cuts are not.
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