ECB’s Schnabel: "Now Is Not the Time for Deregulation" of the Financial System

3 October 2025

By David Barwick – AMSTERDAM (Econostream) – European Central Bank Executive Board member Isabel Schnabel on Friday urged governments to resist weakening post-crisis banking rules, arguing that strong capital and liquidity positions had made banks a source of stability in recent crises and warning that new risks were emerging outside the banking sector.

Speaking at a symposium in Amsterdam honoring De Nederlandsche Bank President Klaas Knot, Schnabel said comprehensive reforms following the 2008 global financial crisis had left euro area banks far better capitalised, more liquid and able to support the real economy during stress.

Banks had “acted as shock absorbers rather than shock amplifiers,” she said, including during the pandemic and the inflation shock that triggered unprecedented ECB rate hikes.

But she cautioned that “calls for the deregulation of banks are becoming louder” at a time of growing nationalism and fragmentation, and insisted that “now is not the time for deregulation.”

Weaker rules would not make European banks more competitive, she said, citing ECB research showing that stronger capitalization improved efficiency and profitability.

Schnabel linked banks’ resilience to the reforms advanced by the Financial Stability Board under Knot’s chairmanship, including work on money market fund resilience, liquidity mismatches in investment funds and leverage in non-banks.

These initiatives, she said, underlined the importance of building a macroprudential framework for the non-bank sector as well, given the growing interconnections with banks.

Knot’s efforts, she said, reflected the need for a holistic framework covering both banks and non-banks, given the growing interconnections across the financial system.

“While banks are safer today, the financial system has developed further and undergone some fundamental structural changes, giving rise to new financial risks,” she said.

Instead of weakening safeguards, Schnabel pointed to structural shifts that had shifted risk beyond banks, including the expansion of non-bank financial intermediaries and the growth of stablecoins.

The migration of credit activity to less regulated parts of the system had created new channels of contagion, she said, with spillovers to banks via concentrated funding exposures and derivative links. Stablecoins, if widely adopted, could also affect bank funding structures and amplify market instability, she added.

To address these vulnerabilities, Schnabel called for extending macroprudential frameworks to non-banks, regulating stablecoins appropriately, and improving efficiency within existing bank rules by streamlining supervision and reporting. She also pressed for completing banking union, developing capital markets union and embracing innovation such as the digital euro to bolster European sovereignty.

“Thanks to the reforms put in place over the past 15 years, euro area banks have become safer,” she said. “[W]ith European banks being strong and profitable, governments would be ill-advised to weaken bank resilience.”