The Irish banks have written to the European Commission calling on it to relax rules around bank capitalisation introduced after the financial crash so they can “unlock lending capacity” for households and businesses and “support economic growth”.
Bank capital rules implemented after the 2008 financial crisis significantly increased the amount and quality of capital banks must hold to absorb losses as a safeguard against future financial crashes.
The call to relax the rules is included in a submission by Banking & Payments Federation Ireland (BPFI), which is the representative body of the banks, to the European Commission’s consultation on the competitiveness of the European Union’s banking sector.
It said “more efficient use of bank capital” and “consistent application of EU banking rules” was required to unlock lending capacity at a time when more lending was required due to the green and digital transitions.
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It called for “targeted reforms” to improve the effectiveness of the EU’s banking framework and to deliver a “level playing field” for banks operating across the single market that “does not disproportionately impact smaller countries such as Ireland”.
BPFI chief executive Brian Hayes said the EU remained a largely bank-based financial system, with banks playing a “critical role” in financing the “real economy”.
“Sustainable economic growth, therefore, depends on banks having the capacity to lend,” he said. “However, the cumulative layering of capital requirements since the financial crisis has added unnecessary complexity, with limited additional financial stability benefits.”
Hayes said “wide variations” in the application of capital and macroprudential measures across member states “undermine the level playing field within the single market, disproportionately affecting smaller member states such as Ireland”.
Hayes said the banks were “not calling for deregulation”, but instead “advocating for a more efficient regulatory framework”.
Asked how much bank capital could potentially be unlocked, BPFI said there was no significant study available for the Irish market, but pointed to a study published last year by the European Banking Federation, a trade body.
It established that discretionary decisions of multiple EU and national authorities over and above the minimum requirement represented an incremental capital requirement of €273.2 billion, affecting financing capacity by an estimated €2.7-4.1 trillion.
While the minimum capital requirement remained stable between 2021 and 2024, the “supervisory discretion” increased by more than €100 billion or 60 per cent during the same period, the study said.
It argued that the European banking system had achieved “a level of resilience far beyond the original targets”, and that all the capital, own funds and liquidity ratios of European banks reached levels “way above minimum requirements” in 2024.
