German banks reject EU's small-lender rules as new framework faces backlash
German banking associations have raised concerns over new European regulations for small lenders. The Deutsche Kreditwirtschaft (DK) submitted a detailed proposal to regulators in March, arguing that current rules could discourage banks from adopting the planned exemptions. Six German banks have already announced they will not use the new framework when it takes effect in 2026.
The European CRR III framework aims to simplify capital rules for smaller banks by replacing risk-weighted requirements with a leverage ratio. This ratio measures equity against total assets, offering a straightforward approach to compliance. However, German lenders argue the current version makes the exemptions unappealing.
On March 10, the DK sent a seven-page position paper to BaFin and the Bundesbank. Among its key suggestions was the exclusion of risk-free assets, such as central bank deposits, from leverage ratio calculations. The group also proposed treating low-risk transactions, like municipal loans, more favourably in the same assessments. BaFin's executive director, Nikolas Speer, acknowledged receipt of the proposals and pledged to work with stakeholders to form a unified German position. He cautioned that without broader support, the small-bank regime might fail across Europe. By March 2026, six institutionsâincluding Volksbank Raiffeisenbank and Sparda-Bankâhad already confirmed they would reject the new exemptions. Their decisions highlight growing scepticism about the framework's practical benefits for smaller lenders.
The DK's proposals now sit with German regulators, who must balance industry concerns with European objectives. If adopted, the changes could make the small-bank regime more attractive to hesitant institutions. Without adjustments, however, the framework risks limited uptake when it launches next year.
