By David Barwick – FRANKFURT (Econostream) – Europe should simplify its extensive banking regulations but must not reduce capital requirements in the name of competitiveness, European Central Bank Vice President Boris Vujčić said in a podcast released Tuesday.

“I think that the competitiveness of banks is not so much a function of the regulation,” Vujčić said. “Regulation can be simplified and should be simplified.”

“We have, if you ask me, too much regulation. Thousands of pages of regulation. I don’t think we need that,” he said.

However, simplification must be distinguished from deregulation, Vujčić said.

“So we have to make sure that while we simplify regulation, which we need to do, we do not deregulate in a sense that we reduce the capital requirements for the banks, which has served us very well through the last shocks,” he said.

Banks had absorbed rather than amplified recent shocks because they held sufficient capital and liquidity, Vujčić said. “If you reduce that, it will not help the competitiveness, but it might endanger financial stability.”

The main obstacle to European banks’ competitiveness was the fragmentation of financial markets and the continued national orientation of banks, rather than regulation, Vujčić said.

“They lack scale to compete,” he said.

Vujčić identified price stability as his foremost priority as ECB vice president. He said he also wanted during his mandate to help overcome financial fragmentation by advancing a genuine banking union and integrated European capital markets.

Europe needed to pursue several elements of financial integration together rather than continuing its previous sequential approach, Vujčić said.

“[W]e should try to push many things in parallel because we’ve been trying to do one by one over the last 10 or so years and it didn’t really work,” he said.

Agreement would probably require a package under which every country obtained some benefit, even if each also had to make concessions, Vujčić said. Such an agreement would allow European companies and financial institutions to achieve greater scale, productivity and competitiveness, he said.

Safeguarding financial stability was another central priority, Vujčić said. The regulatory architecture built since the euro area debt crisis had helped preserve stability, but it would have to adapt to developments including stablecoins, digital currency, tokenization and artificial intelligence, he said.

Among the principal risks, Vujčić cited geopolitical shocks capable of rapidly changing prices and market sentiment, high AI-related equity valuations and the possibility of repricing in sovereign debt markets where fiscal positions were unsustainable.

Growing links between banks, nonbank financial institutions and private credit markets did not presently warrant excessive concern, Vujčić said. However, he warned that those connections could amplify a severe episode of market stress.

The podcast was recorded before Thursday’s ECB monetary policy decision and contained no discussion of the current interest rate outlook.