The European Commission will publish a banking package Friday that loosens capital rules banks call outdated. Leaked drafts show the relief won’t land the same way on every lender in the currency union. The plan revisits the leverage ratio, reopens the mandate of the European Banking Authority (EBA), and rebuilds the EU’s patchwork deposit insurance system.
Ireland’s three main banks already hold leverage ratios more than double the required floor, a detail the Irish Times reported this week that quietly undercuts Brussels’ pitch that every European lender is straining under the same constraint.
Brussels Rewrites the Leverage Ratio Playbook
One proposal sits at the center of the draft: stripping national regulators of much of their power to demand extra capital over leverage ratio concerns.
The leverage ratio measures capital held against a bank’s entire balance sheet, ignoring how risky any single asset is. Banks must hold Tier 1 capital equal to at least 3% of total exposure, a floor that became binding across the currency union in June 2021. Supervisors can still layer on an extra requirement when they judge a bank’s leverage risk elevated, usually because of heavy use of derivatives and off-balance-sheet exposure.
That add-on is exactly what the draft targets.
Financial Services Commissioner Maria Luís Albuquerque is steering the package through the Commission. It bundles three separate moves into one push.
- EBA mandate review: give the bloc’s banking watchdog an explicit competitiveness objective to sit alongside its supervisory job.
- Capital and leverage relief: drop the leverage-linked add-on, thin out the number of separate capital buffers banks must stack, and ease capital charges on mortgages and loans to unrated companies.
- Deposit insurance rebuild: replace a stalled 2015 mutualization plan with a hybrid model that keeps national deposit schemes in place but guarantees them access to liquidity during a crisis.
Why the ECB Isn’t Cheering
Supervisors, the European Central Bank (ECB) among them, have pushed back hard. Handing regulators an explicit mandate to chase competitiveness, they warn, could collide with their core job of keeping banks solvent when conditions turn.
A European Parliament research paper on the sector went further, calling an explicit competitiveness mandate for supervisors a generally ill-advised idea. Supervision and growth promotion, it argued, pull in different directions.
Recent analysis from the Bank for International Settlements (BIS) complicates the industry’s core complaint further. It found large European banks already carry capital requirements roughly equivalent to their US peers, suggesting the gap with Wall Street has other roots.
The pattern is bigger than banking. Brussels has floated a separate new tech agency built to counter dominant American platforms, part of the same worry that Europe is losing ground to the US in both finance and technology.
Which Banks Need This Capital Relief?
The leverage-ratio relief Brussels is designing targets trading-heavy lenders with big derivatives books whose balance sheets sit close to the binding 3% floor. Retail-focused banks that already clear the requirement with room to spare stand to gain little.
| Bank Group | Leverage Ratio | Context |
|---|---|---|
| EU minimum requirement | 3% | Binding across the bloc since June 2021 |
| Ireland’s three main banks | 6.5% to 6.9% | Actual level at the end of 2025 |
| US globally systemic banks | 5% | 3% base plus a 2% supplementary buffer |
| US insured deposit units | 6% | Threshold to count as well capitalized |
Ireland’s three main banks illustrate the gap. Their leverage ratios sit nowhere near the edge, so a rule change built around that specific constraint barely touches them.
The Financial Times reported Tuesday that bank executives complain the leverage ratio, meant as a backstop to risk-based rules, has become the binding constraint for some of them. Those tend to be lenders with large trading books and heavy derivatives exposure, exactly the kind the add-on was built to catch.
US regulators drew a similar line after 2008. Global systemically important banks there must clear a 3% base ratio plus a 2% buffer, and their insured deposit-taking subsidiaries need at least 6% to count as well capitalized, roughly double the EU’s binding floor. Washington has its own bank rulebook fights brewing, including a weighed order that would force banks to verify customer citizenship before opening new accounts.
Banks Still Can’t Move Money Freely Across Borders
EU banks struggle to compete with US peers partly because they do not operate in a comparable single market. A bank at group level cannot simply move liquidity to a subsidiary, or offer the same product across borders, without running into national capital, liquidity, insolvency, consumer-protection and supervisory barriers.
Max Kretschmer, a policy analyst at the advocacy group Finance Watch, made that case this week. The reason, he said, is mostly trust: host countries still fear being left exposed if a subsidiary fails, so national authorities keep managing the risk locally, even though that keeps the market split apart.
A separate Bruegel analysis backs part of that view. Smaller EU lenders with simple business models already carry a regulatory burden disproportionate to their risk, the Brussels-based think tank found. It also warned that swapping risk-based capital rules for a pure leverage ratio, without careful calibration, could push banks toward riskier assets.
A Rulebook Built After 2008 Meets a New Investment Gap
The leverage ratio exists because of what happened last time regulators trusted risk models alone. Basel III added the flat, non-risk-weighted backstop after the 2008 crisis exposed how banks had quietly built up leverage that risk weightings missed. The EU wrote it into law, phased it in over the following decade, and made the 3% floor binding in 2021.
Today’s pressure comes from a different direction. Private financing for growth is scarce across the bloc, and Brussels wants banks positioned to help close that gap.
A June study by Oliver Wyman for the European Banking Federation put the bloc’s additional annual investment need at €1.4 trillion (about $1.5 trillion), nearly double the €800 billion figure in Mario Draghi’s 2024 report on European competitiveness.
European banks have already closed much of the profitability gap the industry complains about. The top 50 lenders lifted their median return on equity from 3.6% in 2020 to a peak of 11.4% in 2023, easing to 10.0% in 2024, just ahead of the top 50 US banks’ 9.5%. Scale is the piece that hasn’t moved.
The top eight US banks still hold 55% of domestic banking assets against 41% for their euro-area counterparts.
The Road From Friday’s Report to a 2027 Law
Friday’s report is a strategy paper, not a law.
Draft legislation could follow next year, with broader banking sector reforms expected to stretch into 2027. None of it binds a single balance sheet until finance ministers and the European Parliament sign off.
- What We Know: the Commission publishes its banking package Friday, the leverage add-on curb sits at the center of it, and the EBA’s mandate, capital buffers and deposit insurance are all open for revision.
- Broader legislative proposals are expected to follow into 2027.
- Parallel talks on deeper capital markets integration are meant to close by the end of this year.
- What’s Unconfirmed: how far the leverage ratio changes will actually go, since even the Irish Times described the plan as “still vague.”
- How the blended national and EU deposit insurance model will work in practice.
- Whether finance ministers and the European Parliament preserve, dilute or expand the relief once negotiations start.
Kretschmer isn’t convinced the trade works. “That will not give EU banks a US-style market,” he told en.philenews. “It could leave Europe with the same fragmented market, but weaker safeguards.”
Friday’s publication starts the clock. The harder fight, over how much capital European banks must hold, won’t finish until well into 2027.
Frequently Asked Questions
What Is the EU’s Bank Leverage Ratio?
It’s a capital rule that ignores risk weighting, measuring a bank’s Tier 1 capital straight against its whole balance sheet regardless of how risky the underlying assets are. Regulators first floated it as a discretionary backstop, then the Basel Committee made the 3% ratio a binding Pillar 1 requirement in December 2017, with the EU’s own floor becoming binding in June 2021.
Why Do EU Banks Trail US Banks in Value and Scale?
European bank stocks have re-rated sharply, with the STOXX 600 Banks index gaining 67% in 2025, its strongest year since 1987. The scale gap persists mostly in investment banking, where US firms still dominate mergers advisory and equity underwriting in a way European lenders have not matched.
When Will the New EU Banking Rules Take Effect?
Nothing changes on Friday itself. The Commission already adopted a related EU market integration package in December 2025 as part of its savings and investments union strategy, and Friday’s report builds on that foundation, with actual legislative text for the leverage ratio and capital changes expected only next year.
What Happens to EU Deposit Insurance Under the Plan?
The Commission is shelving its stalled 2015 proposal for a fully mutualized EU deposit insurance fund. National guarantee schemes stay in charge of payouts but would gain guaranteed access to shared liquidity in a crisis, addressing the host-country fear of being left exposed by a foreign subsidiary’s failure without pooling the actual losses.
Will Smaller EU Banks Get Lighter Rules Too?
Likely yes for the smallest lenders. Germany has proposed a simplified regime for banks under €10 billion in assets, and findings from Bafin and the Bundesbank show these smaller lenders already carry compliance costs out of proportion to the risk they pose.
