“The average MDA buffer in our sample of large European banks stood at 370 basis points as of year-end 2024,” said Magnus Rising, a senior analyst in Scope’s financial institutions team. “We find this buffer level reassuring at a time when the economic outlook for banks has turned more uncertain.”

Meanwhile, the Danish Compromise, a provision of the CRR made permanent since the beginning of the year, should encourage more consolidation in European financial services. Instead of deducting the full value of stakes in insurance companies from CET1 capital, banks can risk-weight these participations, while the applicable risk-weight has been reduced to 250% from 370%.

“With the more favourable capital treatment now permanent, bancassurance models have become more attractive,” Rising said. “This is important because diversification provides opportunities to reduce reliance on net interest income and increase cross-selling with consistent strategies for addressing customer needs.”

The ECB, which grants supervisory permission for the application of the Danish Compromise on a case-by-case basis, confirmed recently that the Compromise is meant to apply to the insurance sector and not to asset management undertakings. While this nuance is less favourable, it is not expected to derail Banco BPM’s acquisition of Anima Holding or BNP Paribas’ acquisition of AXA Investment Managers. Both transactions have been structured so that insurance subsidiaries would acquire the asset managers.

When it comes to Pillar 2 requirements under the Supervisory Review and Evaluation Process (SREP), the ECB is revising its methodology to make European banking supervision more efficient and effective. “The revised methodology is intended to ensure that Pillar 2 requirements focus on risks that are not covered or not sufficiently covered under Pillar 1 but also that risks are not double counted. The process will also be simplified and have fewer procedural steps,” Rising said.

Under the new methodology, supervisors will be able to exercise greater judgement in assessing risks and a bank’s overall risk profile, but qualitative and quantitative benchmarking will continue to be used to ensure that supervisory judgment is applied consistently.

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