Ninety per cent. That is the proportion of retained earnings at major European banks that, between 2022 and 2024, was absorbed solely by the rise in discretionary capital requirements – those that national regulators pile on top of the minimum set by Basel. Not by losses. Not by the crisis. By regulation. This figure, taken from a study published in December 2025 by the European Banking Federation (EBF) and the Global Association of Risk Professionals (Garp), covering 15 banks representing 66% of European banking assets, is the central theme of what the ABBL has been advocating for several months in Brussels.

A long conversation with the chairman of the board, Yves Stein, the CEO, Jerry Grbic, as well as Sandrine Roux and Ananda Kautz, focusing on five themes that may receive less media attention.

The battle for capital

Jerry Grbic gets straight to the heart of the matter with a precision that suggests he has regularly put forward this argument to institutional stakeholders. “80% of the economy is financed by loans in Europe.” To grant these loans, banks must raise capital. And in Europe, this capital is structurally more expensive than elsewhere – not because of Basel III, which Mr Grbic explicitly defends, but because of the additional layers that each national regulator imposes on top. “Banks comply very well with it,” he says of the Basel minimum. “But when you look at the additional buffers, they add a further 66% to capital requirements.”

The EBF-Garp study documents the scale of the phenomenon. Between 2021 and 2024, the CET1 capital required solely under supervisory discretion increased by €102bn across the 15 banks in the sample – whilst the Basel minimum remained stable. Over the three years analysed, these same banks generated €112bn in retained earnings. The result: 90% of this capital, which could potentially have been used for lending and innovation, was absorbed by the rise in discretionary requirements. In total, only €10 billion remained to develop lending capacity. Translated into lending power – applying the 15x multiplier estimated by the ECB – this amounts to approximately €1.5trn of credit capacity that has been tied up. The initial EBF-Garp study, on which this supplementary report is based, estimated the potential impact on financing capacity at between €2.7trn and €4.1trn.

The CEO of the ABBL explains this mechanism in terms of investor arbitrage. “In Europe, it was 6%. So investors aren’t putting their money into that.” The pool of capital available to finance the economy is consequently reduced. “In the worst-case scenario, non-European banks will say to themselves, ‘the increased complexity, the rising capital requirements, etc. are driving us out of Europe’.” Mr Grbic advocates regulation that does not sacrifice the stability of the system, but rather the harmonisation and reduction of these additional buffers. The distinction is as much political as it is technical: “We’ve had this approach of adding a new regulation for every risk identified. The latest layers haven’t had much impact, but they cost a lot of money.”

The reporting wall

Mr Grbic states the second figure without any rhetorical flourish: “41% of investment is directly linked to regulation. In other words, 41% of investment cannot be channelled into innovation, digitalisation or the future of the banking sector.” The phenomenon is exacerbated by the proliferation of reporting obligations. “There is a proliferation of reporting requirements. Every European agency creates its own reporting schemes.” Banks are now subject to more than 200 separate reporting requirements, ranging in frequency from daily to annual, each issued by a different authority that does not coordinate its requirements with the others.

The absurdity of the system is evident in the day-to-day work of IT teams at international groups. Mr Grbic adds: “In Europe, all IT development projects start with the issue of reporting. Because we know it’s complicated and that there’s a requirement to deliver results. Internationally, outside the EU, projects do not necessarily start with reporting, but with the fundamental aspects of the subject matter.”

Ms Roux illustrates the contradiction with a specific example: Dora requires the reporting of cyber incidents, as does NIS2, whilst incidents involving third-party service providers are subject to a third, separate reporting channel. “Ultimately, we will always end up using the same channel, but we will be making multiple reports.” The proposal put forward by the ABBL during the European Commission’s consultations on the regulatory omnibus package: to centralise reporting at source, with a common approach and harmonised definitions. “I provide the information on one point, and then it is used in different ways.”

The issue goes beyond operational convenience. The accumulation of regulations creates an internal contradiction between texts that are at odds with one another. Mr Grbic cites the example of instant payments: “On the one hand, we want maximum speed: the money needs to have arrived before it has even left. But on the other hand, there are plenty of checkpoints to ensure that this flow is compliant.” This is not, he points out, a question of deregulation: “It’s about merging, having this cross-cutting review and asking: what do we need? What has worked and what can we remove?”

Amla, or the paradox of convergence

The third issue concerns Amla, the new European anti-money laundering authority based in Frankfurt, whose first technical standards are currently being drawn up. Mr Grbic explains: “We’re talking about 65 new RTSs, with each document running to around 100 pages – so 6,000 to 7,000 pages of new regulations.” What makes the situation worse is that Amla appears to be developing its own reporting formats rather than building on existing ones. “They are going to create their own reporting system and not use what has worked well in the market, or use the Gafi questionnaire. This means that banks and other players in the financial sector will have to keep producing new reports.”

The ABBL does not dispute the need for the authority itself – the fight against money laundering is a priority it explicitly supports, and the harmonisation of national rules is precisely what it is calling for. However, it identifies a systemic risk in the approach: centralised supervision that creates new layers rather than streamlining existing ones runs counter to the stated objective. “We talk about convergence, but we’re adding layers. That’s the problem.”

The issue of opening accounts for legal entities – a cross-cutting issue that the press conference will address directly – is partly at stake here. The approach identified by the ABBL: “Access to the register of beneficial owners, access to the company register: using this as the official information that serves as proof. At present, this is not the case. The bank has to request the same information again.” The future European EU Wallet is identified as a credible medium-term solution. This is not a Luxembourg-specific problem, insists Mr Grbic: “I very much doubt that this is a disproportionate problem in Luxembourg compared to other countries in Europe. One can find articles in English on the subject in Dubai, Hong Kong and Shanghai.” Customers’ frustration at being asked the same questions repeatedly stems from a logic that banks do not explain sufficiently: “I understand the frustration when a customer answers the first set of questions, but the answers increase the risk. This is what is known as the ‘risk approach’, which triggers further questions.”

Tokenisation: between ambition and reality

The fourth issue concerns tokenisation and DLT, a subject on which the ABBL is calling for a transition from the European pilot scheme to a credible operational framework. Two years after the launch of the DLT Pilot Regime, the results are meagre. The official register of infrastructures authorised by Esma, published by the European authority, currently lists only six entities across the entire EU: CSD Prague in the Czech Republic, 21X and 360X in Germany, Axiology in Lithuania, Lise SA in France, and Securitize Europe in Spain. Luxembourg – a jurisdiction that boasts blockchain expertise accumulated since 2012, with the CSSF having had a dedicated team since the first blockchain laws were introduced – is not included.

The explanation provided by ABBL expert Ananda Kautz is structural: “The criteria for project approval are restrictive. Large organisations wishing to invest in these new technologies have not been accepted into the scheme. At that point, there is no point in joining a system that is very, very limited.” The ABBL’s aim is therefore to broaden both the acceptance criteria and the thresholds, so that a greater number of players can benefit from the scheme. Nevertheless, projects do exist in Luxembourg: groups developing stablecoins in-house, a programme run by the Central Bank of Luxembourg with market participants to test the technology within the settlement infrastructure, and the involvement of several Luxembourg-based players, including the Stock Exchange. “It’s an area where we’re taking a stance; I don’t think we have a choice,” adds Ms Kautz.

Mr Grbic places tokenisation within a broader context: “With regard to the entire infrastructure enabling the transfer of assets—and everything that will relate to DLT in the future—if this is digitised through market infrastructures, we should already be preparing the European framework today so that everyone knows this is the European standard in this area. Unfortunately, this is still lacking.” Yves Stein adds by outlining the financial centre’s positioning: “Everything to do with savings, securitisation and the capital markets is close to Luxembourg’s heart. Luxembourg has a role to play without placing too much risk on its own balance sheet.”

The defence case: from scratch to three meetings

The fifth issue is the most unexpected – and probably the one least anticipated by the ABBL members themselves. For several months now, the association has been reaching out to the Luxembourg Ministry of Defence on its own initiative. “Defence wasn’t really an issue in Luxembourg,” admits Yves Stein. The reason for this move is simple: the European political consensus has identified banks as key players in financing the continent’s defence reorientation. “We have always said that we wanted to be part of the solution,” recalls Mr Stein. But to play this role, Luxembourg’s banks were starting from scratch in terms of their knowledge of the sector: the exact nature of the activities, Nato contracts, financial flows – all elements that KYC requires them to master before entering into any relationship.

The third meeting with the Ministry was imminent at the time of the interview. The aim was to understand “to what extent, in order to reassure our banks, we can make use of information from the Ministry of Defence, which plays a major role in certification and which, in a sense, has knowledge of customers and KYC procedures”.

The next step will involve the regulator, to clarify the interpretation of the applicable rules. The focus is not on large groups – “Société Générale already finances the defence sector in France” – but on Luxembourg-based SMEs and dual-use companies. On the issue of compatibility with ESG criteria, the answer is clear: “It is possible to invest in defence and still be ESG-compliant. We cannot do everything, so there are limits to this, but it is possible.”