Frank Elderson: Fireside chat

Elderson speaking as ECB supervisory board vice-chair on bank competitiveness, banking union and the SSM simplification agenda. Nothing on rates, inflation or the monetary policy stance. The tradeable content, such as it is, sits in European bank equity: explicit rejection of capital requirement cuts, explicit support for cross-border M&A, and a concrete list of supervisory process speed-ups.

What’s new: Very little that is market-moving. New specifics: supervisory statistics due next week will confirm ROE around 10%; capital-related decision processing cut to under six days in Q2; simple securitisation approvals down from three months to about seven days; stress test data points cut about 55%; roughly 40 supervisory publications discontinued. Also a floated interim EDIS step where only the largest cross-border banks first join a single deposit guarantee scheme, and a suggestion to raise the SNCI asset threshold from EUR 5bn to as high as EUR 10bn. On policy rates: nothing.

KEY FINDINGS

• The ECB sees no evidence current capital requirements constrain lending and says lowering prudential requirements would not deliver competitiveness gains, adding it could instead fund shareholder payouts. Kills the deregulation trade for EU bank capital relief: simplification is being explicitly decoupled from lower requirements.
• Supervisors repeat they will not obstruct consolidation provided the limitative regulatory criteria are met, and back well executed cross-border mergers. Supportive for EU bank M&A risk arbitrage, though it is a restatement rather than a new green light.
• Interim EDIS proposal: allow the largest and most internationally active banks, including subsidiaries, to first join a single deposit guarantee scheme. A pragmatic route around the German-led deadlock that, if picked up politically, would ease home-host capital and liquidity ring-fencing for the big cross-border groups.
• Concrete simplification metrics: capital decisions under six days, securitisation approvals about seven days, stress test data points down 55%, FINREP for SNCIs around 700 data points versus 13,500. Real cost relief at the margin for banks, especially smaller ones, but too small to move sector earnings estimates.
• Fragmentation framing: 80% of loans domestic, under 2% of deposits held cross-border, single market services barriers equivalent to a tariff above 90%, financial services above 60%. Reinforces the ECB's push for SIU and banking union completion, a slow-burn structural story rather than a trade.

FROM THE DOCUMENT

We do not see any evidence that current capital requirements have constrained lending.

Lowering prudential requirements would not therefore automatically deliver gains in competitiveness or unlock lending volumes as some expect and could also be used by banks to increase shareholder payouts.

In short, we want simpler requirements, not lower requirements.

Without losing sight of the goal of a fully-fledged EDIS, interim steps deserve consideration – for instance, allowing the largest and most internationally active banks, including their subsidiaries, to first join a single deposit guarantee scheme.