Brussels to propose easing banks’ capital requirements. The European Commission will this week propose to lower capital requirements for some banks as Brussels moves to follow loosening of regulation in the US and the UK. The plan follows longstanding demands from lenders, which argue that overlapping capital requirements from different authorities put them at a disadvantage against rivals in other jurisdictions, forcing them to allocate more funds to cover risks on their balance sheets.

In a draft of the report seen by the FT, the Commission says it will propose removing "Pillar 2 capital requirements related to the leverage ratio". The requirements are discretionary add-ons that supervisors, such as the ECB, can impose if they believe that other capital requirements do not sufficiently address a lender’s level of risk. The plan to ease the leverage ratio, which sets the minimum capital a bank needs as a percentage of its total assets, follows similar moves by the US and UK to lower these requirements. Bank executives complain the leverage ratio was meant to be a backstop to the separate risk-based capital rules but has increasingly become the main constraint for some of them.

The draft also states the EU should reduce the number of extra capital buffers that banks are required to satisfy and that their design and calibration should be improved. It proposes reducing reporting requirements for banks and reviewing the mandate of the European Banking Authority, as part of efforts to improve the competitiveness of the sector. Additionally, the draft gives further details on an expected overhaul of a longstanding proposal for a European Deposit and Insurance Scheme that would provide a backstop to national schemes that protect customer deposits in the event of a bank collapse. The draft report is still subject to change.