The European Central Bank (ECB) has published the Eurosystem’s response to the European Commission’s consultation paper on the possible impact of the Capital Requirements Directive IV and the Capital Requirements Regulation (CRD IV/CRR) on bank financing of the economy.
Among other things, the response notes that:
- the ECB considers the adoption of the CRD IV/CRR to be a major achievement as it is playing a key role in strengthening the resilience of the EU banking sector, restoring market confidence and providing a level playing field for the banking industry;
- overall, the ECB remains strongly supportive of the additional capital requirements introduced in the CRD IV/CRR, as the evidence clearly indicates that a substantial capital increase above previous levels was necessary and desirable;
- it is important to appropriately acknowledge the significant long-run welfare gains of strong capital requirements and the role that a healthy and resilient banking system plays in facilitating growth over the whole financial cycle;
- at this early point after the implementation of the CRD IV/CRR rules, it is difficult to come to firm conclusions about their impact on the financing of the real economy;
- empirical work carried out by the ECB on the impact of higher bank capital requirements on the euro area economy identifies some adverse impacts on loan supply, although this appears to be relatively limited in economic terms; and
- overall, theoretical and empirical work both suggest that net positive effects will prevail in the long term – with adverse loan supply effects concentrated in a short-term transitional phase, as banks adjust to the new requirements.