EU’s potential capital reform abandonment deemed a disaster by former Basel head

The man who until recently ran the world’s most important banking standards body has a message for European policymakers: don’t do it. Neil Esho, who served as secretary general of the Basel Committee on Banking Supervision (BCBS) until March 2026, told Bloomberg that the EU’s consideration of abandoning the output floor, a cornerstone of post-financial-crisis capital rules, would be “a disaster” and “a big step too far.” What the output floor actually does The output floor is one of those regulatory mechanisms that sounds mind-numbingly technical until you realize what it prevents. Established in 2017 as part of the Basel III reforms, the rule says that when banks use their own internal models to calculate how risky their assets are, the result can’t fall below 72.5% of what a standardized approach would produce. The rule exists because the financial crisis revealed a deeply uncomfortable truth: banks using internal models had a tendency to produce flattering risk assessments. The variability between institutions was enormous, and regulators decided that enough was enough. Now the EU is reportedly weighing whether to scrap or significantly relax this requirement in the name of Eur...