An economic analysis for better financing of the economy

During a conference organised in Brussels by the French Banking Federation (FBF) on 19 March, Frédéric Gonand, Professor of Economics at University Paris Dauphine-PSL, presented the conclusions of his economic analysis on capital requirements for European banks, drawing on academic literature.

Key points from the analysis include :

A relaxation of bank capital requirements, which are significantly higher than in other economic regions, could have a notable impact on credit supply, particularly in the context of 2025. “Academic literature is fairly unanimous in estimating that a decrease in banks’ capital ratios in a period of deteriorating economic conditions – such as in 2025 – has significant favourable effects on the economic activity.” the study notes.

• The best available scientific studies allow us to consider robustly that, in the current economic context, a 1% decrease in banks’ capital requirements would rapidly increase credit supply by approximately 10%.

While the final transposition of the Basel Accords has been applicable in the EU since 1 January 2025, the study argues for intelligent management of capital requirements. The aim is not to question the financial soundness of banks, but rather to prevent prudential rules, which are accumulating and sometimes overlapping, from becoming an additional obstacle to economic activity when it slows down.

• Targeted adjustments to capital could thus play a key role in effectively supporting the financing of the European economy. This approach would offer a response tailored to the economic climate while preserving the stability of the banking sector in the long term.

The study concludes that, in the economic context of 2025, easing bank capital requirements could effectively support the economic situation by stimulating credit supply, thus complementing the monetary easing initiated by the European Central Bank in mid-2024.

Based on this analysis, the FBF estimates that for French banks alone, which are already very sound and would remain so, while maintaining a level equal to or higher than other economic areas, the potential would be an additional lending capacity of €120 billion (on annual production), up to an additional outstanding amount of nearly €1,200 billion after ten years. (Read the press release)