Tweaks to Basel III reforms pushed by European Union policy-makers may end up hobbling banks’ solvency and investor perceptions of the sector, while providing slim short-term growth benefits, a European Central Bank (ECB) staff paper has found.

Keeping looser capital charges for certain exposures and curtailing the reach of the reforms’ new risk-weight floors may briefly and marginally boost lending and GDP – but would eventually leave banks more leveraged than under a ‘plain vanilla’