ECB highlights efforts to simplify banking regulation and promote competitiveness

Frank Elderson, Member of the ECB Executive Board and Vice-Chair of the Supervisory Board, and Alejandra Kindelán, Chair of the Spanish Banking Association, addressed the “Competitiveness for growth” event organized by the Spanish Banking Association.

The discussion focused on the need to simplify the regulatory, supervisory, and reporting framework to improve banks’ competitiveness. The High-Level Task Force on Simplification published a report with recommendations at the end of 2025, and the European Commission is planning to publish a report later this summer following a targeted consultation.

The ECB emphasizes the importance of distinguishing between simplification and deregulation. Simplification aims to maintain resilience and improve efficiency without altering capital requirements, whereas deregulation could weaken resilience.

The ECB’s current reform agenda includes initiatives such as fast-tracking simple capital decisions, streamlining supervisory guides, and improving stress testing processes. These reforms have already shown tangible results, such as reducing approval times from months to days.

Regarding competitiveness, the ECB highlights the need for greater market integration within the EU. Currently, around 80% of bank lending is confined to domestic markets, and cross-border activity remains limited. A comprehensive roadmap towards completing the Single Market and advancing banking union, including a European Deposit Insurance Scheme, is essential for supporting growth and investment.

The ECB states that current capital requirements for large European banks are not more stringent than those of non-European competitors and do not constrain lending. The focus remains on maintaining resilience while simplifying the capital framework, including merging macroprudential buffers and clarifying the role of the management buffer in internal capital assessments.

Proportionality is already embedded in the regulatory framework, with smaller banks reporting less data. The ECB sees potential for further easing, such as increasing thresholds for small and non-complex institutions and relaxing supervisory requirements, provided risk management remains prudent.

On cyber resilience, the ECB emphasizes the growing threat posed by AI-enabled cyberattacks. Banks are urged to invest in operational resilience, with the ECB planning a “dear CEO” letter and a digital euro pilot in 2027 to enhance security and innovation.

The digital euro, expected to be issued in 2029, is viewed as an opportunity to strengthen Europe’s strategic autonomy and support private sector innovation. It will coexist with private initiatives, providing a public foundation for innovation and enabling banks to maintain client relationships, generate revenue, and reduce dependency on international schemes. The ECB is preparing a pilot with over 50 applications from banks and payment providers, aiming for a potential first issuance in 2029, contingent on EU legislation adoption.

Design features of the digital euro include limits on holdings to prevent deposit outflows and ensure financial stability. The ECB’s analysis indicates that the digital euro will not pose significant risks to liquidity or stability, even in severe stress scenarios.