Study warns simpler bank rules could increase hidden risk

The paper listed for the European Central Bank’s Forum on Central Banking in Sintra, Portugal, from June 29 to July 1, is titled “The stringency and complexity of post crisis bank regulation.” Mariassunta Giannetti of the Stockholm School of Economics and co-authors argue that simpler bank rules can be easier to game, even when they look tougher on paper.

Giannetti is the Katarina Martinson professor of finance at the Stockholm School of Economics and a research fellow and member of CEPR and ECGI.

Regulators in the United States and Britain are trying to pare back red tape to support lending and innovation. In Britain, HM Treasury’s May 2026 ring-fencing review called for a more flexible and proportionate regime while still protecting depositors, and estimated the changes could unlock up to £80 billion in additional support for businesses. Ring-fencing keeps the largest UK banking groups from mixing retail banking with investment banking.

Simpler capital rules can make it easier for banks to shift exposures elsewhere in the system rather than reduce risk overall. When capital rules or buffer requirements are simplified too far, banks shift risk rather than absorb less of it. That can mean more room to repackage balance sheets, route activity into less regulated corners, or push credit risk toward private credit and private equity-backed lending.

In December 2025, the ECB’s Governing Council proposed making banks’ capital requirements and buffers less complex while full, timely and faithful Basel III implementation remained essential. In April 2026, the ECB framed those simplification efforts as part of a wider push to strengthen the Single Market and bank competitiveness.

After the state-backed takeover of Credit Suisse in March 2023, FINMA found the bank had been weakened by repeated scandals and management failures over many years. In June 2025, the Swiss Federal Council concluded its too-big-to-fail regime still needed improvement to reduce risks for the state, taxpayers and the economy.