The European Banking Authority signaled a major policy shift on Tuesday, suggesting that national regulators should place greater trust in banks themselves when determining capital buffer requirements. This marks a notable evolution in post-crisis banking supervision across the European Union.

Capital buffers represent additional equity holdings that lenders must maintain above minimum regulatory requirements, designed to absorb potential losses during periods of financial stress. Currently, supervisors conduct detailed assessments of each institution's risk profile before setting these mandatory cushions.

Under the proposed approach, banks would take on more responsibility for calculating their own buffer needs, potentially reducing the intensive back-and-forth between institutions and their overseers. This could streamline compliance processes and give lenders more flexibility in managing their capital structures.

However, the move raises questions about whether banks can accurately assess their own risks without regulatory second-guessing. The EBA's guidance could fundamentally reshape how European lenders manage capital planning and regulatory relationships.