The European Commission’s 2026 banking competitiveness consultation has put the Output Floor back on the policy table. Industry has called for weakening the floor. The case against doing so rests on four observations.
First, the Output Floor responds to a documented diagnostic. Successive Basel Committee studies have shown that risk-weighted assets vary substantially across banks for reasons that go beyond genuine portfolio differences, undermining the comparability of reported capital ratios. The 72.5 % calibration places a lower bound on the divergence between modelled and standardised outputs without prohibiting internal models.
Second, the March 2026 proposal from the US doesn’t provide a precedent for relaxing the floor. It’s a structural redesign that removes most advanced approaches for credit and operational risk, narrows the mandatory scope to the largest US banks, and retains model-based measurement mainly for market risk. The absence of a general 72.5 % floor in the new US design is therefore not directly comparable to abolishing the EU floor.
Third, the cost-benefit case for weakening the floor is flimsy. The additional Tier 1 capital impact of full EU Basel III implementation is small at sector level, and there’s no evidence that capital requirements have constrained euro area banks’ lending capacity. Reopening the core floor would trigger more regulatory uncertainty and supervisory recalibration – the opposite of simplification.
Fourth, reopening the floor is a strategic error: it is the most visible element of the 2017 Basel III compromise, and diluting it unilaterally would forfeit the EU’s standing to demand faithful implementation from others.
This CEPS In-Depth Analysis paper proposes a five-question regulatory decision test to discipline the case-by-case proposals that will reach ministers, supervisors and the European Parliament over the coming months: reject changes that undermine the backstop purpose; fix Pillar 2 overlap rather than weaken the floor; use targeted FRTB-style relief only for proven international distortions; complete Banking Union rather than relabel national fragmentation as a Basel burden; and streamline reporting where the cost is purely operational.
