Bundesbank calls for a simpler—CET1 centric—capital stack for euro area banks

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Bundesbank calls for a simpler—CET1 centric—capital stack for euro area banks

Germany’s Bundesbank has tabled a set of options to strip back the euro area’s “maze” of bank capital rules, arguing that complexity is hobbling the very buffers meant to be used in stress. In a keynote on 12 September 2025, President Joachim Nagel urged EU policymakers to consolidate requirements, clarify what counts for going versus gone concern loss absorption, and make more of the system explicitly releasable in a downturn—without lowering resilience

What the Bundesbank is putting on the table

Nagel outlined three core simplification moves and a proportionality strand:

Two core requirements, met entirely with CET1. Today’s parallel minimum ratios and add ons would be pared back so the going concern stack speaks in one language: common equity
Re assign AT1 and Tier 2 to “gone concern” use only. Subordinated instruments would serve resolution needs (MREL/TLAC), rather than padding day to day requirements that banks try to meet in steady state
Merge the CCyB and SyRB into a single, releasable buffer. That would make drawdowns more credible when macro conditions sour
A cleaner, lighter regime for small, non complex banks. Proportionality is a repeated theme across the speech and the conference framing

The push comes with an explicit health warning: simplification is not deregulation. In a companion essay, a Bundesbank executive board member called for Europe’s overlapping “stacks” to be made transparent and usable, not looser

How this fits into the EU rulebook (Basel III finalisation, SSM/SRB)

The proposals would land on top of CRR3/CRD6, the EU’s final Basel III package that entered into application on 1 January 2025 (with some phased elements). Under current law, Pillar 1 minima remain CET1 4.5%, Tier 1 6%, total capital 8%, with buffers (the CBR) made of CET1 and added via the CRD, plus SSM set Pillar 2 overlays and guidance. Any shift to a CET1 only going concern stack and a single releasable buffer would therefore require legislative changes in Brussels and coordination with supervisors and the Single Resolution Board

A stricter separation of prudential (Pillar 1, Pillar 2, CBR/P2G) and resolution (MREL/TLAC) is also squarely in line with concerns the SRB and ESRB have flagged: as frameworks overlap, capital that looks releasable on paper can be trapped by parallel minimums in practice (including leverage and MREL expressed in LRE). The Bundesbank’s blueprint would try to eliminate that double counting

Why now: the problem of buffer usability (stated and implicit goals)

Stated goals are usability and clarity: if buffers cannot be drawn without breaching some other binding constraint—or if banks fear market or supervisory stigma—the buffer concept breaks. The Basel Committee and ESRB have documented these frictions; the ECB/ESRB also advocate building releasable space early in the cycle via a “positive neutral” CCyB. The Bundesbank proposals closely echo that logic

Implicit goals are competitiveness and coherence. EU banks face higher complexity costs and, at the margin, less usable headroom than some peers. Simplifying the stack while tilting going concern requirements toward pure CET1 could improve comparability with other jurisdictions, especially as the US reworks its “Basel endgame” and leans into domestic recalibration

Early reactions

ECB/SSM Chief Supervisor Claudia Buch has been championing “simplification without deregulation,” backed by a High Level Task Force chaired by Luis de Guindos to sift practical proposals across prudential, supervisory and reporting domains. Messaging from ECB supervisors consistently ties simplification to SREP process reform, not lower capital
EBA and SRB The EBA’s 2024 report mapped EU stacking orders (Pillar 1/2, buffers, leverage, MREL) and stopped short of recommending immediate rule changes, but it underscores how stack interactions can bind. The SRB has warned explicitly that overlap can limit buffer usability
Industry The European Banking Federation’s “Simply Competitive” campaign urges cutting regulatory complexity as a competitiveness priority—language that dovetails with the Bundesbank pitch while also pushing for broader policy changes
Parliament/think tanks A recent European Parliament study on banking competitiveness calls for simpler capital/loss absorbency requirements and more centralised macroprudential decision making in the Banking Union
Markets There was no discrete price move tied to the speech; Euro STOXX Banks rose +0.12% on 12 Sept, with subsequent sector moves dominated by macro newsflow. That points to a policy story unfolding over months, not days

Consistency with past Bundesbank/ECB positions

The Bundesbank has historically backed full, faithful Basel implementation and published regular impact updates. Its 2024 assessment put the CRR3/CRD6 driven increase in minimum required capital for a German sample at ~3.3% by 2030 (phase in), reinforcing a resilience first stance. The new initiative targets architecture and usability, not lower capital. On the ECB side, recent speeches and blogs emphasise stable methodologies, more proportionality for small banks, and process simplification—again, not a reduction in prudential strength

What would change if the ideas advance?

Bank stability A CET1 only going concern stack could raise the quality of loss absorbing resources and make drawdowns clearer in stress, at the cost of transition pressure for banks that currently rely on AT1/T2 to meet Pillar 2 requirements. The payoff is a more credible “use it when needed” buffer design
Resolution credibility Ring fencing gone concern resources in MREL/TLAC and removing overlaps with prudential buffers would clarify the hierarchy of loss absorption, potentially strengthening resolution planning and investor signalling. But it would likely reprice AT1/T2 as their role is narrowed
Competitiveness and costs Less stacking order confusion and fewer composition rules can reduce compliance friction and free headroom that is actually usable, which industry argues matters for credit supply. The ECB and ESRB’s push for releasable capital supports this direction, provided overall resilience is preserved
Legislative pathway Delivering any of this requires EU co legislation (CRR/CRD and potentially SRMR/BRRD changes) and detailed alignment across SSM and SRB methodologies. With the ECB task force work ongoing, observers expect an initial simplification package for lawmakers’ consideration around year end. Timelines and calibration will be the politics

Analytical context: today’s stack and why it binds

Under the current EU framework, banks satisfy Pillar 1 minimums (CET1/T1/TC), then layer on Pillar 2 Requirements (P2R), the combined buffer requirement (CBR)—made of the capital conservation buffer, countercyclical buffer, systemic risk buffer, and G SII/O SII buffers—and Pillar 2 Guidance (P2G). In parallel sit the leverage ratio minimum and MREL under the resolution regime. This is the source of multi restrictiveness: dipping into the CBR can trip leverage or MREL constraints, rendering buffers de facto unusable without supervisory waivers and potential market penalties. The Bundesbank’s CET1 only going concern idea and single releasable buffer are designed to untie those knots

What to watch next

Text and calibration The Bundesbank has posted the speech entry and BIS transcript; watch for the full text and any follow up technical notes spelling out the two CET1 metrics, leverage interaction, and transition
ECB task force deliverables How far will the de Guindos task force go on buffer releasability, P2R/P2G composition, and prudential resolution separation—and what needs co legislation?
Macroprudential governance If CCyB and SyRB merge into a single tool, who sets and releases it—national authorities, the ECB, or a hybrid within the Banking Union? The ECB/ESRB “positive neutral” agenda is the analytical backdrop
AT1/T2 markets A pivot to gone concern only could reshape issuance and pricing of AT1/T2, affecting banks’ funding mixes and WACC
Level playing field The US is rewriting its capital package; any EU simplification will be measured against that and the UK’s evolving approach