ECB rejects calls to lower bank capital requirements

The ECB on Thursday pushed back on industry pressure to reduce capital requirements, maintaining the eurozone's average CET1 ratio at 11.2% for lenders.aol+1
The stance contrasts with U.S. regulators, who proposed cutting capital demands by up to 4.8% for the largest banks under a sweeping overhaul announced in March.foxrothschild
Separately, the ECB is considering doubling minimum reserve requirements to 2%, a move German banks have already rejected, according to Reuters .reuters+1

The European Central Bank on Thursday rejected industry pressure to reduce bank capital requirements, maintaining that current levels are essential to ensure the stability of the eurozone's financial system. The stance comes as the ECB separately weighs a move to double minimum reserve requirements for lenders, a proposal that has already drawn sharp opposition from German banks.

Holding the Line on Capital

The ECB's pushback, reported by Reuters on July 2, reaffirms the central bank's long-standing position that simplifying regulation should not translate into weaker capital buffers. The ECB has maintained an average Common Equity Tier 1 capital requirement of 11.2% for eurozone lenders, even as U.S. regulators under the Trump administration have moved to cut capital demands for American banks by as much as 4.8% for the largest institutions.banque-france+4

In December 2025, the ECB proposed streamlining its rule book by consolidating buffer layers but explicitly stated that this would not reduce overall capital levels. "We do not intend to compromise the current capital status of European banks," ECB Vice President Luis de Guindos said at the time.reuters

Reserve Requirement Debate

Separately, six sources told Reuters that the ECB is considering raising the minimum reserve requirement to 2% from 1% of banks' customer deposits and certain other funding. The reserves, which earn no interest, currently stand at approximately €173.56 billion. Doubling them would cut the Eurosystem's annual interest bill by nearly €4 billion.reuters

The proposal remains at an early stage of internal deliberation and has not yet been formally discussed by the Governing Council, with a decision expected before autumn. Germany's banking industry swiftly opposed the idea, with a leading association firmly rejecting the potential increase.thecorner+3

Shifting Liquidity Landscape

The twin debates unfold against a backdrop of tightening monetary conditions in the eurozone. The ECB raised interest rates by 25 basis points in June to combat inflation driven partly by elevated energy costs, bringing the deposit facility rate to 2.25%. Excess reserves in the system have already declined from around €2.9 trillion at the start of 2025 to €2.5 trillion. ING analysts have noted that the transition from abundant liquidity to scarcer reserves is reshaping eurozone money markets, with upward pressure on short-term rates expected to build gradually.ecb.europa+2

The ECB next decides on monetary policy on July 23.reuters

Sources (25)