Regulatory Change Puts More Weight on Bank Judgment

Bank regulation is shifting, but the message for senior leaders is not simply “less” or “more.” The more useful word may be “targeted.” 

In a recent ProSight webinar, S&P Global Ratings managing directors and sector leads Stuart Plesser, Giles Edwards, and Nicolas Charnay described a regulatory landscape moving at different speeds across the U.S., Europe, the U.K., and Switzerland. The details vary by region, but the executive-level issue is consistent: As rules evolve, banks still have to decide how much risk they are willing to take; how much capital and liquidity they want to hold; and how they will explain those choices to investors, supervisors, and the market. 

A few priorities deserve attention: 

Watch what banks do with capital flexibility. Plesser said proposed U.S. changes to capital requirements could leave banks able to hold less capital than they do today. That does not mean every institution will respond the same way. Some may return more capital; others may hold buffers. The important question is how management teams use any flexibility and whether lower regulatory requirements translate into meaningfully lower capital over time. 

Keep supervision in the conversation. Edwards made an important point: “supervision matters as much as regulation.” Strong rules have limited value without supervisory follow-through. That means regulatory change should be evaluated alongside examination intensity, fieldwork, and the bank’s own risk appetite. 

Separate U.S. easing from European simplification. The U.S. discussion is centered on targeted capital easing, stress capital buffers, leverage requirements, and possible future liquidity changes that could reduce on-balance-sheet liquidity. In Europe, Charnay described the direction as “more an evolution than a revolution,” with more emphasis on simplifying supervisory processes than materially changing bank regulation. 

Remember that global alignment is imperfect. Basel standards create a framework, but each region applies them differently. U.S. changes, European debates over the output floor that limits internal model deviation from standardized capital requirements, U.K. proportionality efforts, and Switzerland’s recent reforms all point to a more fragmented regulatory map. Internationally active banks should expect comparability questions to remain important. 

Focus on management response, not just rule changes. S&P has not changed its broad regulatory view based on current proposals, but the analysts emphasized that bank behavior matters. If easing leads to more aggressive balance-sheet growth, lower capital, reduced on-balance-sheet liquidity, or greater risk appetite, the credit implications could become more meaningful. 

The takeaway: Regulatory change is gradual, uneven, and region-specific. Senior leaders should track the rules, but they should pay just as much attention to their institution’s response: capital strategy, liquidity posture, risk appetite, supervisory readiness, and the story those decisions tell about credit discipline. 

To watch the full webinar—which also featured S&P Global’s Gregg Novek, credit product specialist, and Kathryn Doud, credit solutions market development analyst—access “The Evolving Regulatory Landscape of Credit Risk: Implications for Banks in the U.S. and Europe.”