ECB’s Elderson backs lighter rules for more small banks

European Central Bank official Frank Elderson has backed raising the asset threshold for simplified small-bank supervision from €5 billion to €10 billion, saying the change could bring roughly 150 additional banks into the lighter regime. In an interview with Die Presse published on the ECB website on 20 October 2026, he paired that proposal with a warning against weakening banks’ core financial safeguards.

Elderson also said banks were expected to submit concrete plans for addressing artificial intelligence-related cyber risks by the end of October. Supervisors had asked them in July to reassess cybersecurity measures, IT budgets and staffing as advanced AI models become faster at finding and exploiting vulnerabilities.

The interview set out his case for reducing administrative burdens while preserving resilience: simpler supervision and a more integrated European banking market, rather than deregulation, should underpin competitiveness.

A wider simplified regime, with risk-based limits

Under the existing framework described by Elderson, banks classified as small and non-complex report no more than 30% of the data required from large banks. He supported extending that treatment through a higher asset threshold, but presented it as a proposed change—not an adopted measure.

Other possible reductions in workload include longer intervals between regulatory reviews where a bank’s risk profile permits, and greater use of information supervisors already hold when conducting stress tests. Elderson said reporting obligations had already been reduced and processes accelerated, without quantifying those changes.

He insisted that proportionality must stop where it would compromise financial stability. Requirements for sound governance, effective risk management, adequate capital and liquidity, and preparedness for emerging risks should remain intact. More targeted supervision, he argued, would also allow supervisors to devote more resources to the most significant risks.

Fragmentation is the competitiveness problem

Elderson identified Europe’s fragmented banking market as the main obstacle to international competitiveness. Limited cross-border activity prevents banks from fully capturing economies of scale, diversifying their businesses and moving capital and liquidity efficiently across the European economy, he said.

Differences in national legal systems, insolvency arrangements and consumer protection rules continue to make cross-border banking more difficult and expensive. His prescription was to complete the Single Market, the savings and investments union and the banking union, including a European deposit insurance scheme.

He urged the European Commission to keep simplification and integration together in its banking reform package. While he offered no numerical estimate of the resulting increase in cross-border lending, he argued that a more unified market would support competition, product choice and risk sharing, as well as investment in the energy transition and other long-term needs.

Responding to banks’ complaints about compliance costs, Elderson pointed to the much larger economic and social damage of the 2008 financial crisis. He credited subsequent reforms with strengthening European banks, describing them as well capitalised, liquid and more profitable on average than they had been for many years.

Basel standards should remain a common floor

On the possibility of other jurisdictions applying Basel III more loosely, Elderson defended international minimum standards as essential in a financial system where capital and shocks move across borders. Banks should compete through efficiency, innovation and risk management, he argued, rather than through weaker regulatory requirements.

He allowed for carefully targeted national differences supported by evidence. But lowering formal Pillar 1 requirements would not eliminate the underlying risks: supervisors would still have to assess them and require banks to respond. The result could be a transfer of work from regulation to supervision rather than a genuine reduction in the burden.

AI brings efficiency—and new dependencies

Elderson highlighted potential gains from AI in fraud detection, information processing, risk management and operational efficiency. Alongside cybersecurity, however, he identified risks from excessive reliance on models, poor-quality training data and dependence on a small number of external technology providers.

Banks using AI for credit assessments must watch for bias and blind spots rather than delegate decisions unquestioningly to algorithms, he said. Concentrated reliance on cloud providers creates a separate operational vulnerability.

The end-October deadline for banks’ cyber-risk action plans is a concrete supervisory step within that broader assessment. The interview did not report the results of those submissions.

Private credit can carry risk back to banks

Asked about risks associated with the US AI investment boom and its financing through private credit and corporate bonds, Elderson focused on connections between banks and non-bank lenders. Moving a loan outside the banking sector does not necessarily remove the associated exposure from banks, he cautioned.

He illustrated the issue with a bank that lends to a private-credit provider while also financing companies that borrow from that same provider. Such overlapping relationships can create concentrations of risk that are difficult to see until financial stress emerges.

Elderson nevertheless supported a more diverse financial system, saying market-based finance can complement banks in meeting Europe’s investment needs. His warning concerned the need to identify and manage these connections, rather than a rejection of non-bank lending.