European banking regulators are overhauling their approach to how financial institutions assess risk, promising to slash bureaucratic delays that have frustrated the industry.

In a move to smooth relations with major banks, the European Central Bank (ECB) is expanding the scope of changes lenders can make to their internal capital models without triggering lengthy regulatory reviews.

Speaking in Amsterdam, Supervisory Board member Steven Maijoor revealed plans to broaden exemptions from the full approval process that has created significant bottlenecks.

"We're looking at redefining what constitutes 'limited' changes to these models," Maijoor explained, as per Reuters reporting. "This will allow us to bypass full assessments including on-site inspections in more cases."

The initiative addresses widespread industry complaints about regulatory delays. Multiple financial institutions have expressed frustration over the ECB's slow examination of models that determine their capital requirements, an issue previously acknowledged by regulators.

While placing some responsibility on banks, Maijoor noted that lenders sometimes announce model changes but fail to deliver documentation promptly. "This creates scheduling challenges when reserving staff for on-site assessments," he said.

The developments come amid growing pressure from the financial sector to ease regulations implemented after the 2008 crisis. As memories of that financial turmoil fade, banks increasingly argue that excessive rules hamper their ability to finance economic growth.

Despite some European central bankers advocating for regulatory simplification, the ECB maintains that improved efficiency will result in more "intrusive" oversight rather than a lighter touch.

The banking watchdog plans to update its internal models guide this year, possibly requiring banks to incorporate historic crisis data when forecasting potential loan defaults—a move that could impact capital positions for certain institutions.

Maijoor, who previously led the European Securities and Markets Authority, supports reviewing technical standards but draws a clear line: "We should examine whether we can simplify the whole stack of technical standards and guidance," he said. "But I don't support deregulation or reducing capital requirements."

The ECB is also implementing changes following a 2023 external expert review, adopting a more risk-focused approach where certain elements of annual bank assessments will no longer occur yearly.

"Regulatory challenges can be addressed either through framework adjustments or through more effective supervision," Maijoor added, emphasizing the ECB's commitment to maintaining financial stability while reducing unnecessary bureaucracy.

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