Pedro Machado: Simplification and complexity in the banking union: separating the wheat from the chaff
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Pedro Machado, Member of the ECB Supervisory Board, argues that simplifying the prudential framework should make it more proportionate and easier to understand, not lower capital requirements. He says the main drag on European banks' competitiveness is a market still fragmented along national lines and sets out concrete proposals to ease the burden on small banks.
Key points
- Under US rules, the largest euro area banks would need around 8% more CET1, not less
- Proposal to widen the small and non-complex institutions category: threshold from €5 billion to €10 billion and up to 85% of LSIs
- From 2027 a dedicated FINREP category would cut their reported data points from around 13,500 to roughly 700
- Backs keeping the output floor and merging macroprudential buffers into two tiers
Who is affected
Significant and less significant banks in the banking union, national supervisors
Deadlines
New FINREP category for small banks from 2027
Plain-language version
Pedro Machado, a member of the ECB's banking supervision board (the ECB is the euro area's central bank), wants simpler rules for small banks, for example cutting the data they must report from about 13,500 items to about 700 from 2027. But he does not want lower capital, the banks' own cushion that protects customers from losses. He thinks Europe's real banking problem is that the market is still split by country.
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