The assessment is encouraging, with banks’ providing a margin for error, with very limited deleveraging planned and with overwhelmingly most of the required minimum met by new capital rather than reduced assets. However, EBA will of course monitor developments very closely. Where should we go next in terms of policy responses?
The European banking regulators’ room for manoeuvre is in fact very constrained by the two dimensions of the negative feedback loop problem. The central dilemma is that for microprudential regulators more capital is a good thing – but that from a macroprudential perspective there is a concern about how fast to get that and at what cost.