San Francisco Frontiers - ECB proposes simplifying rules for banks

Europe has been under pressure to ease a complex web of regulations due to fears its banks will fall further behind already dominant US rivals, as the Trump administration looks to prune rules in the world's top economy.

ECB Vice President Luis de Guindos said the proposals, which will be presented to the European Union's executive for consideration, aim to provide "a more simple framework and to start to reduce unnecessary burdens".

But, during a media briefing, he stressed that: "Simplification efforts should maintain banks' resilience. And by bank's resilience, we mean the level of capital."

A key proposal is simplifying the current rules governing banks' capital requirements, which were introduced following the global financial crisis in 2008-2009.

This would involve merging several types of capital buffers that banks must currently hold, reducing them to just two.

Rules for smaller banks would be eased "in a prudent manner," under the ideas laid out by the central bank for the 20 countries that use the euro.

The ECB also proposed strengthening the ability of certain types of bonds to "absorb losses".

The proposal referred to so-called additional tier one (AT1) bonds which are issued by banks, which have been in focus since the 2023 implosion of Credit Suisse.

To facilitate the takeover of the Swiss lender by domestic rival UBS, regulators wrote down a massive chunk of the bonds to zero -- infuriating bondholders, who are usually better protected than shareholders.

The ECB also called for the EU-wide stress tests that banks must currently undergo to be simplified and for reporting requirements to be eased.

The Frankfurt based-institution's recommendations will feed into the considerations of the EU, which is examining easing banking rules as part of a broader push to slash onerous regulations in many sectors.

P.Adams--SFF