European banking regulation has achieved its primary goal of strengthening financial stability after the global financial crisis, but its growing complexity is increasingly raising concerns among policymakers and industry leaders.

At a recent financial sector event organized by Finance Finland, two prominent figures in Finland’s financial policy debate — Olli Rehn, Governor of the Bank of Finland, and Arno Ahosniemi, CEO of Finance Finland — agreed that Europe’s banking rulebook has become unnecessarily complicated, even though they diverge on the appropriate level of capital requirements for banks.

Post-Crisis Regulation Has Strengthened the System

The extensive regulatory framework governing European banks today is largely the result of reforms introduced after the 2008 global financial crisis. These reforms — including stricter capital rules, enhanced supervision, and macroprudential policies — were designed to make banks more resilient and reduce systemic risks in the financial system.

According to Rehn, these reforms have succeeded in improving the stability of the banking sector across Europe. Bank financing for households and companies is generally functioning well, even amid economic uncertainty.

However, he noted that much of the regulatory framework was developed under intense time pressure during the financial crisis. The result is a regulatory architecture that works in practice but has become difficult to navigate.

“It is beyond question that banking regulation is in need of simplification… The end result is functionally stable but unnecessarily complex,” Rehn said.

Diverging Views on Capital Requirements

While both policymakers support simplifying the regulatory framework and supervisory practices, their views diverge sharply when it comes to capital requirements.

Rehn emphasized the importance of maintaining strong capital buffers to safeguard financial stability and ensure banks can withstand economic shocks. Robust capital requirements have become a cornerstone of international banking regulation under frameworks such as the Basel III standards.

Finance Finland’s Ahosniemi, however, warned that excessively high capital requirements could limit banks’ ability to provide credit to businesses and households. In particular, he argued that overly restrictive regulation may reduce banks’ capacity to finance economic growth and investment.

From the industry perspective, the key concern is not only the level of capital requirements but also the cumulative burden created by overlapping regulations and supervisory expectations.

Balancing Stability and Economic Growth

The debate reflects a broader challenge facing European regulators: how to maintain financial stability without constraining the banking sector’s role in supporting economic activity.

European banks remain the dominant source of corporate financing in many countries, including Finland. Tightened regulation and supervisory frameworks can influence credit availability, particularly for smaller companies and growth-oriented firms that rely heavily on bank lending.

At the same time, policymakers remain cautious about weakening safeguards introduced after the financial crisis. Those reforms significantly reduced systemic vulnerabilities and improved the resilience of the global financial system during recent shocks, including the pandemic and the inflation-driven interest-rate cycle.

Simplification Emerging as a Common Objective

Despite differences over capital requirements, both the central bank and the financial industry agree on one point: the regulatory framework should become simpler and more predictable.

Greater clarity in the legal basis for supervision and a more streamlined rulebook could improve regulatory efficiency while maintaining the stability gains achieved over the past decade.

For European policymakers, the challenge will be to modernize banking regulation without weakening the safeguards that were built after the financial crisis — a balancing act that continues to shape the future of financial supervision across the EU.