Speaking in Frankfurt am Main at the tenth annual conference of the European Systemic Risk Board (ESRB) marking its 15th anniversary, European Central Bank Vice-President Boris Vujčić outlined perspectives on European banking resilience, integration, and competitiveness.
Recalling the establishment of the ESRB in response to the global financial crisis and subsequent sovereign debt crisis, Vujčić noted that estimates put the median fiscal cost of a banking crisis at around 7% of GDP for advanced economies, alongside persistent losses in output, employment, and investment. While the banking industry has argued that current EU capital requirements constrain credit and disadvantage European banks relative to global competitors, Vujčić defended the strength of current bank balance sheets as a strategic advantage for Europe.
At the same time, Vujčić acknowledged that resilience does not require complex rules and advocated for regulatory simplification. At the end of last year, the ECB Governing Council put forward recommendations to simplify the EU's regulatory, supervisory, and reporting frameworks. These proposals included merging existing capital buffers into a non-releasable buffer and a releasable buffer, moving the leverage ratio framework from four elements to a 3% minimum requirement and a single leverage ratio buffer, and more closely aligning MREL and TLAC frameworks. Additionally, the ECB recommended a dedicated, prudent, and simpler regime for smaller banks, building on the existing regime for small and non-complex institutions with greater proportionality.
Addressing the broader debate on competitiveness, Vujčić noted that euro area bank capital ratios have steadily increased since the global financial crisis, with the median Tier 1 ratio more than doubling from around 8% in 2009 to more than 16%. Return on equity has also risen steadily since the pandemic to reach historical highs, and the average price-to-book ratio has reached around 1.5, narrowing the valuation gap with US banks. Vujčić cautioned against assuming that reducing capital requirements is the sole path to competitiveness, pointing to nuanced academic evidence regarding capital requirements and credit supply.
