Unlocking bank capital key to boosting lending and growth in the real economy – BPFI
- Layering of capital requirements has constrained banks’ ability to ensure capital flows efficiently to households, businesses and strategic EU priorities.
- Variations in the application of capital and macroprudential measures undermine the level playing field, disproportionately affecting smaller Member States such as Ireland.
- BPFI response to the European Commission’s consultation on the competitiveness of the EU banking sector calls for targeted reforms to the EU’s banking framework.
Friday 24th April 2026 – More efficient use of bank capital and consistent application of EU banking rules, is required to unlock lending capacity for households and businesses and support economic growth, according to a submission by Banking & Payments Federation Ireland (BPFI) to the European Commission’s consultation on the competitiveness of the EU banking sector.
In its response, BPFI calls for targeted reforms to improve the effectiveness of the EU’s banking framework and deliver a level playing field for banks operating across the Single Market that does not disproportionately impact smaller countries, such as Ireland.
Commenting on the submission, Brian Hayes, Chief Executive of BPFI, said: “BPFI welcomes the Commission’s recognition that a stronger, more integrated banking sector is a key building block for a competitive European economy. The EU remains 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.”
“However, the cumulative layering of capital requirements since the financial crisis has added unnecessary complexity, with limited additional financial stability benefits. This has constrained banks’ ability to ensure capital flows efficiently to households, businesses and strategic EU priorities, including the green and digital transitions. Separately, 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.”
Pointing to opportunities for reform, Mr Hayes added: “The sector is not calling for deregulation. Rather, we are advocating for a more effective and efficient regulatory framework, that preserves financial stability while reducing unnecessary complexity, supporting growth and enabling capital to flow where it is most needed across the Single Market.”
Mr Hayes concluded: “European and Irish banks have demonstrated strong resilience in recent years. They are well capitalised, highly liquid and supported by materially improved underwriting standards, risk governance and supervision. The policy focus must now shift towards simplification, proportionality and deeper integration. Our response offers practical recommendations to strengthen competitiveness and support sustainable economic growth, and we look forward to continued constructive engagement with the Commission and other stakeholders.”
BPFI’s submission calls for a number of key priorities including to:
1. Streamline and simplify the regulatory framework.
2. Update the capital framework to ensure it accurately reflects underlying risk.
3. Embed genuine proportionality across the banking framework.
4. Complete the Banking Union to unlock scale and efficiency.
5. Ensure a level playing field within the EU and globally.
6. Support market liquidity and effective capital markets intermediation.
BPFI’s full submission can be downloaded here.
ENDS/
Banking & Payments Federation Ireland (BPFI) represents the banking, payments and fintech sector in Ireland. Together with its affiliates, the Federation of International Banks in Ireland and the Fintech & Payments Association of Ireland, BPFI has over 120 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace.
Contact: Fiona Murphy, Head of Communications, fiona.murphy@bpfi.ie or Jillian Heffernan, Director of Communications, jillian.heffernan@bpfi.ie.
Note to editors
Key recommendations outlined in the response include:
| Streamline and simplify regulatory framework | BPFI supports strong prudential standards and internationally agreed rules. However, the cumulative layering of requirements since the financial crisis has created excessive complexity without commensurate financial stability benefits. The EU should: Simplify the capital stack, where Pillar 1, Pillar 2 and macroprudential buffers increasingly overlap and address similar risks, inflating capital requirements and constraining lending capacity. Streamline EU rulemaking, particularly the growing volume of Level 2 and Level 3 measures and supervisory guidance that often go beyond Level 1 legislation. Reduce macroprudential complexity by moving towards a clearer and more coherent capital stack, including reform of O-SII buffer methodologies, which currently vary widely across Member States and undermine the level playing field between small and large member states. |
| Update of the capital framework to ensure it accurately reflects underlying risk | Existing capital requirements do not always reflect the actual risk profile of bank balance sheets, particularly where material risk‑mitigating measures are already in place, like strict Loan-to-Value (LTV) or Loan-to-Income (LTI) mechanisms. The EU should: Take into account improved underwriting standards and macroprudential measures when setting capital requirements, rather than fully relying on backward-looking calibrations. Examine whether total Tier 1 capital levels could be reduced, similar to the approach adopted in the UK or USA. Ensure that all banking markets in the EU can benefit from lower capital requirements when lending for social and affordable housing. The current rules favor certain market structures compared to that of Ireland’s. Remove CET1 software deduction rules to support investment in technology. |
| Embed genuine proportionality across the banking framework | Despite repeated commitments to proportionality, the current framework continues to impose disproportionate costs on smaller and less complex banks, as well as on specialised institutions. The EU should: Embed a more effective and consistent use of proportionality in EU legislation, particularly in reporting, governance and supervisory expectations. Create a simplified prudential and supervisory regime for small/medium, low‑risk banks, based on harmonised EU‑wide criteria. Ensure a supervisory approach that is genuinely risk-based and outcomes focussed.Avoid extraterritorial application of EU rules to non‑EU operations where this creates conflicting obligations. |
| Complete the Banking Union to unlock scale and efficiency | Europe’s banking market remains fragmented, with capital and liquidity often trapped within national borders. This fragmentation limits the benefits of scale, weakens cross‑border activity and reduces banks’ ability to deploy resources efficiently across the Single Market. The EU should: Allow for the movement of capital and liquidity across banking groups through better use of existing rules. Reduce national discretions and inconsistent supervisory practices that undermine integration. |
| Ensure a level playing field within the EU and globally | A competitive European banking sector requires both internal coherence and international consistency. Within the EU, national gold‑plating and divergent implementation continue to undermine the Single Rulebook. The EU should: Tackle EU goldplating by replacing Directives with Regulations where possible. Remove inconsistent implementation of internationally agreed standards, like in respect to resolution requirements. Engage with Member States around removing domestic rules that lead to an unlevel playing field within the EU, like specific bank taxes or obligations placed on certain market participants. Ensure that the regulatory framework supports fair competition across banks and other market participants. Re-examine remuneration rules to ensure they remain globally competitive and in line with other global jurisdictions. In addition, specific domestic restrictions on variable pay should be removed to ensure a level playing field within the EU and between sectors. |
| Support market liquidity and effective capital markets intermediation | There is a need to recalibrate the Investment Firms Regulation (IFR/IFD) so that it better reflects the business models and risk profiles of non‑bank intermediaries that are essential to deep and liquid capital markets. The EU should: Improve proportionality within the IFR overall Classification thresholds and governance requirements should be revisited, and prudential requirements should be adapted in order to support liquidity provision, price formation and market depth Investment firms, which are proprietary trading firms, should be explicitly removed from having to contribute to resolution funds when they will be wound down in the event of failure. |
