This report examines how to simplify the EU capital framework for banking institutions while preserving their resilience and the effectiveness of supervision. It proposes targeted adjustments to reduce complexity, improve consistency, and support effective supervisory tools. Recommendations include preserving existing requirements while suggesting modifications to optimize the structure of leverage ratios.
This report, published by the European Banking Authority (EBA) in June 2026, analyzes the simplification of stacking orders in the EU prudential and resolution framework. It covers banking institutions in the EU/EEA, focusing on capital requirements, macro- and microprudential buffers, as well as resolution requirements (MREL/TLAC). The scope includes rules from CRR/CRD, BRRD, SRMR regulations and recent CRR3/CRD VI reforms, over the post-financial crisis period until 2025-2026. The report relies on supervisory data and quantitative analysis up to end 2025 (p. 1-38).
- Subject: The report addresses the complexity of the European banking prudential and resolution framework and proposes ways to simplify it without compromising resilience or supervisory effectiveness.
- Importance: The current framework, although robust, is very complex with multiple capital layers and specific requirements, which burdens banks’ management and may limit the single market’s efficiency.
- Key findings:
- The post-crisis framework has strengthened the solidity of EU/EEA banks, with rising capital ratios (20.4% of RWA in 2025) and improved liquidity.
- Complexity stems notably from numerous capital layers (Pillar 1, P2R, P2G, CCoB, macroprudential buffers, MREL/TLAC) and their interactions, as well as country- and institution-specific calibrations.
- Some microprudential elements (e.g. P2R, P2G) should be preserved to cover risks not addressed by Pillar 1.
- Consolidating macroprudential buffers into a single releasable buffer could improve clarity and efficiency.
- In resolution, MREL complexity reflects the prudential framework, with multiple metrics and non-standardized adjustments.
- Conclusions: The report recommends targeted and balanced changes, without radical overhaul, aiming to simplify requirement structures while maintaining resilience and international compliance.
- Recommendations:
- Remove certain macroprudential measures integrated into RWA calculation to clarify microprudential calculation.
- Maintain P2R and P2G roles, with clarifications to avoid double counting and improve convergence.
- Do not merge microprudential layers (CCoB, P2R, P2G) into one, to preserve flexibility and transparency.
- Simplify the leverage ratio stack by removing P2G LR and converting P2R LR into a buffer.
- Create a single releasable macroprudential buffer combining CCyB and SyRB.
- In resolution, consider adjustments to align MREL metrics and reduce discretionary adjustments.
- Do not remove AT1 instruments despite some criticisms, given their role and significant impacts of removal.
(p. 1-8)
- Context: Since the 2008 financial crisis, the European prudential framework has been strengthened by implementing Basel III via CRR/CRD IV and its evolutions, as well as establishing a common resolution framework (BRRD) to avoid public bailouts.
- Issues: The current framework is robust but very complex, with many capital layers and specific requirements, complicating bank management, supervision, and potentially hindering competitiveness and single market integration.
- Objectives: Assess how to simplify the prudential and resolution framework without weakening resilience or supervision, improving coherence, predictability, and efficiency.
- Limits: The report does not propose a total overhaul nor address coordination among authorities or requirement calibration.
- Guiding principles: preserve resilience and capital neutrality, respect international standards (BCBS, FSB), ensure proportionality for all institution sizes, and improve efficiency and level playing field in the single market.
(p. 9-20)
Microprudential:
- P1R should cover only microprudential risks, excluding macroprudential measures from RWA calculation (e.g. removal of CRR articles 458(2)(d)(iv), 164, 124(9)) for better comparability and transparency (p. 20-21).
- P2R is essential to cover risks not or insufficiently covered by P1R, notably concentration, IRRBB, governance and business model risks. Convergence in P2R application is progressing but remains imperfect. The report recommends clarifying its role in CRD and strengthening coherence with P1R (p. 21-24).
- P2G is non-binding guidance aimed at protecting against breaching the Total SREP Capital Requirement (TSCR) under stress. Its use varies widely across countries, and banks often perceive it as a strict requirement, limiting effective use. The report suggests clarifying its non-binding nature in CRD to improve usage and capital planning (p. 25-27).
- Merging micro layers (CCoB, P2R, P2G): two options studied (full merger or partial CCoB+P2R) are not recommended due to uncertainties on resilience, transparency, and residual complexity. The current separation is preferred (p. 28-31).
- Leverage ratio: recommended removal of P2G LR and conversion of P2R LR into a buffer to simplify the stack while retaining a tool against regulatory arbitrage (p. 31-32).
- Capital composition: removal of AT1 instruments is not recommended due to high impact on CET1 needs (estimated EUR 20.2 billion shortfall), notably for G-SIIs, and the stabilizing role of AT1. Technical improvements on AT1 features are considered (p. 33-34).
Macroprudential:
- Proposal to create a single releasable macroprudential buffer combining CCyB and SyRB, with a high-level common methodology to foster convergence while preserving local flexibility (p. 30-35).
- Recommendation to review O-SII scoring methodology and improve guidance on O-SII buffer calibration (p. 35-38).
Resolution:
- MREL complexity stems from prudential framework complexity, with multiple metrics (RWA, TEM, TLOF) and discretionary adjustments.
- Targeted recommendations to align TLAC and MREL eligible resource definitions, simplify subordination requirements, and standardize MREL calibration with fewer discretionary adjustments.
- Presentation of alternative future approaches: MREL linked to a single fully subordinated metric, introduction of 'Resolution Pillar 1' and 'Resolution Pillar 2', or merging requirements into a single stack (p. 39-56).
Interactions:
- The report highlights the importance of understanding interactions between microprudential, macroprudential, and resolution objectives to ensure framework coherence and effectiveness (p. 56).
- Established facts:
- EU/EEA banks have strengthened their capital (total capital ratio at 20.4% RWA end 2025) and liquidity (LCR at 163%, NSFR stable at 126.9%).
- Framework complexity results from stacking multiple micro, macro, and resolution requirements, with country- and institution-specific calibrations.
- P2R effectively covers risks not addressed by P1R, but its application varies.
- P2G is underused as intended, often perceived as a strict requirement.
- AT1 instruments are essential to capital; their removal would cause a significant CET1 shortfall.
- Assumptions:
- Removing certain macroprudential measures from RWA calculation would not reduce resilience if compensated by other macro tools.
- Merging microprudential layers could reduce complexity but might harm transparency and flexibility.
- Interpretations:
- Clarifying P2G’s role and non-binding nature could improve stress capital management.
- A single releasable macro buffer would improve simplicity and predictability of macroprudential requirements.
- MREL simplification is possible through better harmonization of metrics and calibrations.
- Uncertainties:
- Precise impact of changes on overall resilience depends on implementation and future calibrations.
- Market acceptance of P2G clarifications and macro buffer merging remains to be seen.
- Proposals on AT1 instruments require further analysis.
(p. 3-38)
- The report concludes that simplification of the prudential and resolution framework is desirable and achievable through targeted adjustments without compromising resilience or international compliance.
- Main recommendations:
- Remove macroprudential measures integrated into RWA calculation (CRR articles 458(2)(d)(iv), 164, 124(9)) for harmonized microprudential calculation.
- Maintain and clarify P2R’s role to cover risks not addressed by P1R, with better convergence among authorities.
- Reconfirm P2G’s role as non-binding guidance, clarify its use to avoid perception as a strict requirement.
- Do not merge CCoB, P2R, and P2G to preserve flexibility and transparency.
- Simplify leverage ratio stack by removing P2G LR and converting P2R LR into a buffer.
- Create a single releasable macroprudential buffer combining CCyB and SyRB, with a common methodology.
- Improve O-SII scoring and buffer calibration methodology.
- Align and simplify MREL metrics and calibrations, reduce discretionary adjustments.
- Maintain AT1 instruments in capital composition while considering technical improvements.
- The report also proposes avenues for future reflection on resolution framework simplification.
(p. 1-38)
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