The ECB has also joined this simplification effort. In May Vice-President Luis de Guindos confirmed the establishment of a High-Level Task Force on Simplification. The task force is led by de Guindos and comprises the central bank governors of France, Germany, Italy, Estonia and Finland, plus Sharon Donnery from the ECB Supervisory Board. It thus brings together the views of both the sides of the ECB and of the national central banks, with the aim of forging a common Eurosystem position. The task force is due to finalise its recommendations by the end of the year: these will then be signed off by the ECB Governing Council.
The ECB has not publicly set out the task force’s terms of reference or disclosed its internal structure or work programme. But we expect that its workstreams would include:
Capital stack rationalisation,SREP processes,Supervisory decision-making,Reporting requirements.
In recent months ECB leaders have repeatedly rejected wholesale deregulation as a means to promote growth. On the contrary, ECB Supervisory Board Chair Claudia Buch has argued (for example in a June speech) that overall regulatory standards – and thus the resilience of the banking sector – must be maintained. Rules and supervisory practice can be simplified, she said, but not relaxed.
One area where Buch indicated openness to more substantive reform was the structure of bank capital requirements. The existing ‘capital stack’, Buch noted, is highly complex, comprising 9 different layers of minimum requirements and buffers, some fixed, others variable and set by different national or European authorities. Both Buch and Donnery identified this as a potential area for simplification. Over the summer, the ECB task force reportedly received proposals from the German authorities to merge capital buffers, allow only CET 1 instruments to be counted as regulatory capital, and separate ‘going concern’ capital from ‘gone concern’ resolution requirements.
Implementing these or similar reforms would require amendments to the Capital Requirements Regulation and other EU law. At this stage it is not clear how far the ECB task force is willing to go in recommending legislative change: The ECB and other European officials admit that the risk of reopening legislation agreed after long and difficult negotiations among EU legislators would be very difficult. It may well be, therefore, that the ECB task force’s recommendations are primarily in areas where simplification would affect future regulation or does not require legislative change, such as internal supervisory processes and reporting requirements.