Research Paper
The stress tests to which European banks have been subjected in recent years have highlighted their soundness and resilience under adverse macroeconomic and financial scenarios. A further conclusion can be drawn from these results: they reinforce the evidence regarding the effectiveness and relevance of the measures implemented by regulators in response to the financial crises that marked the end of the 2000s. The resulting strengthening of the prudential framework has therefore contributed to enhancing the resilience of the European banking system.
However, in a context where European banks tend to underperform their US counterparts, and as a process of easing and recalibrating certain prudential requirements has been underway in the United States since 2025, the question arises as to whether some of the requirements resulting from the implementation of Basel III in Europe may be excessively restrictive relative to the actual risks borne by European banks.
This research paper, builds on the considerations set out in the Draghi Report (2024), which notably calls for a reassessment of the European prudential framework in light of the international competitiveness of the banking sector. It also takes place against a backdrop of calls from several banking industry bodies, including the French Banking Federation (FBF) and the European Banking Federation (EBF), for the simplification and recalibration of the European prudential framework. The Draghi Report notably recommends assessing whether the existing prudential framework, including in the context of Basel III implementation, is consistent with the objective of maintaining a European banking system that is both sound and internationally competitive.
The study first reviews the main regulatory lessons drawn from the global financial crisis and the subsequent strengthening of the prudential framework. It then examines recent developments in the US regulatory environment before providing a quantitative assessment of selected regulatory adjustments in Europe. In particular, the analysis estimates the potential effects of postponing selected capital-intensive measures, including the Fundamental Review of the Trading Book (FRTB) and the Output Floor, as well as reducing the regulatory reporting burden. Their economic impact is assessed through several indicators, including regulatory capital released, annual capital cost savings, theoretical additional credit exposure capacity and reductions in reporting-related costs. The findings provide a quantitative perspective on the potential trade-offs between financial stability and banking competitiveness. They suggest that targeted regulatory recalibration could generate measurable economic benefits for European banks while raising the broader question of how the European prudential framework can evolve without undermining the resilience achieved since the global financial crisis.
