ECB Supervisory Chair Urges Broader Evaluation of Bank Regulation and Stronger Accountability

Key Takeaways

• ECB Supervisory Board Chair Claudia Buch called for comprehensive, evidence-based evaluation of prudential regulation and supervision, a broader stakeholder debate, and better data infrastructure.
• She also previewed the revised 2026 Pillar 2 methodology and argued against permanent capital reductions as a way to stimulate lending.
• Compliance teams should treat the speech as a signal of supervisory priorities, not as new binding requirements, as the EU banking competitiveness legislative process unfolds.

Deep Dive

ECB Supervisory Board Chair Claudia Buch called for comprehensive, evidence-based evaluation of prudential regulation and supervision, a broader stakeholder debate, and better data infrastructure. She also previewed the revised 2026 Pillar 2 methodology and argued against permanent capital reductions as a way to stimulate lending. Compliance teams should treat the speech as a signal of supervisory priorities, not as new binding requirements, as the EU banking competitiveness legislative process unfolds.

Several substantive points bear on capital and supervisory planning. The ECB is applying a new, more risk-based methodology for setting Pillar 2 requirements this year. It aims to remove overlaps with Pillar 1 while preserving supervisory judgment. Benchmarking by an independent second-line function will check consistency across banks before capital decisions are communicated. Buch also distinguished the binding Pillar 2 requirement from the non-binding Pillar 2 guidance. She noted that the ECB Governing Council's High-Level Task Force proposed simplifying the capital stack by grouping macroprudential buffers into "releasable" and "non-releasable" types. She cited evidence that European SME and infrastructure supporting factors have not demonstrably increased lending. This suggests those temporary deviations from Basel may face scrutiny. She also cited evidence that higher capital does not reduce lending over the longer term and that better-capitalized banks have lower funding costs.

Timelines are limited. The next ECB Annual Report will describe the ongoing reform of European supervision, which aims to be more efficient, effective, and risk-based. The EBA's EU-wide public repository of supervisory data requests is expected to become operational in early 2027. The EBA's Pillar 3 data hub launched this year, and the ECB is running a pilot giving external researchers access to granular bank-level data. These developments point to greater transparency and external analysis of bank data, so disclosure quality and consistency will matter more.

Recommended actions:
- Review internal capital planning against the revised Pillar 2 methodology and the outcomes of this year's SREP.
- Assess readiness for benchmarking-driven comparisons with peers.
- Prepare for the Pillar 3 hub and the data request repository by checking data quality, lineage, and consistency of disclosures and supervisory submissions.
- Ensure advocacy positions in the Commission's competitiveness process are evidence-based, since the ECB is emphasizing the empirical record and a more balanced stakeholder debate.
- Monitor reform proposals on capital stack simplification and the treatment of buffers and supporting factors.

Risk implications are moderate. Capital relief is unlikely to come from permanent reductions, supervisory scrutiny will remain judgment-based but more consistent, and data transparency will increase. Institutions that are weakly capitalized, have low profitability, or sit close to minimum requirements face the greatest sensitivity, given the evidence cited on credit supply constraints.

Source: European Central Bank