Understanding the banking sector capital framework in the European Union

Massimo Libertucci, Skirmantas Dzezulskis and Samuel McPhilemy

No 387, Occasional Paper Series from European Central Bank

Abstract: This paper describes and evaluates the European Union (EU) banking sector capital framework, focusing on how the international standards set by the Basel Committee on Banking Supervision have been implemented within the EU. Using granular supervisory data for significant institutions under the Single Supervisory Mechanism (SSM), we quantify the capital impact of EU-specific regulatory choices, supervisory measures and macroprudential policies. We show that most EU capital requirements stem from Basel standards, which encompass both prescriptive “Pillar 1” components and elements that are expected to be designed and calibrated at the jurisdictional level. The paper describes the evolution of capital ratios and requirements since the inception of the SSM and discusses the relationship between changes in capital levels and indicators of banking sector performance. To provide a comparative perspective, a model-based counterfactual exercise compares capital requirements of EU banks with those that would arise if EU banks were subject to the main prudential regulations that currently apply in the United States, which vary depending on the size of the bank. The results show that for the largest EU banks, the current US rules would entail stricter requirements, whereas mid-sized EU banks would be subject to less stringent requirements. Our findings show that EU capital requirements are broadly comparable to those in other jurisdictions and are largely in line with international standards. When assessing broader indicators of bank performance, we highlight the importance of considering not only private costs and benefits, but also intended effects and broader societal objectives. [...] JEL Classification: G21, G28, F36

Keywords: bank capital regulation; banking supervision; Basel III; European Union banking sector; supervisory policy (search for similar items in EconPapers)
Date: 2026-04
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op387.en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2026387

Access Statistics for this paper

More papers in Occasional Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().