ECB proposals on simplification of European bank prudential framework and streamlining of supervision

The European Central Bank (ECB) has contributed to the EU's ongoing simplification agenda by endorsing a series of recommendations for simplification of the EU prudential framework. A total of 17 recommendations were made by the ECB's High-Level Task Force on simplification across the regulatory, supervisory and reporting frameworks. Key proposed changes include: reducing the number of capital stack elements in the EU risk-weighted framework; expanding the scope of small banks that would qualify for a simplified regulatory framework as small and non-complex institutions (SNCI); giving the ECB Governing Council responsibility for taking a holistic view of the overall level of capital demand across the banking union; and completing the banking union, including finalisation of the European Deposit Insurance Scheme.

Although the recommendations advocate for simplification, they are based on core principles that resilience should be maintained, supervisory bodies should be able to meet their prudential objectives and international standards should be upheld. The ECB will present the recommendations to the European Commission, which is expected to present a report on the banking system in 2026.

In parallel, the ECB has published a report on its ongoing program of work to streamline supervision within the single supervisory mechanism, while protecting resilience in the banking sector. The ECB's reforms respond to evolving geopolitical and macro-financial risks which require a more efficient and risk-based system of supervision. Expected developments in 2026 include: (i) implementation of proposed improvements to the supervisory review and evaluation process; (ii) implementation of the "Next-level supervision"; project, which includes faster-decision making and simplified reporting; (iii) a review of the application of the proportionality principles in SNCI supervision; and (iv) a review of the ECB's supervisory guides. The ECB stresses its ongoing commitment to protecting banking sector resilience, ensuring that greater efficiency does not come at the expense of lower supervisory standards.

The ECB also endorsed the ESRB's report on the simplification of its tasks.

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