DB Deutsche Bank Aktiengesellschaft

FRANKFURT—Controversial new rules designed to strengthen the banking sector risk damaging lenders' ability to support the economy, the head of the Netherlands' largest bank by assets said Tuesday evening.

The comments underline tensions between Europe and global regulators only weeks before the new rules are due to be completed.

Ralph Hamers, chief executive of Dutch bank ING, told a Frankfurt journalists' club that in some areas, new rules—which critics refer to as "Basel IV"— would require capital increases. "The normal reaction of banks is to shrink your balance sheet," he added.

Such a strategy risked, however, limiting banks' ability to provide support to eurozone firms and households, especially at a time when European leaders are pushing on banks to do just that.

Banks can't help support the economy "if we don't grow as banks," he said. This scenario isn't "supportive of what Draghi's trying to do and what Juncker's trying to do," he said, referring to European Central Bank President Mario Draghi and European Commission President Jean-Claude Juncker.

Mr. Draghi's institution has for years tried to prod banks to boost their lending to the real economy via ultracheap loans to banks and purchases of assets off banks' balance sheets, in the hope that lenders would pass the new funds to the real economy. Mr. Juncker has promoted a €315 billion ($346.42 billion) investment plan to support growth on the continent.

The continent's banks argue that the proposed new rules would hurt European lenders in competition against American rivals. The rules are designed to limit banks' ability to calculate the riskiness of mortgage assets the banks hold.

Unlike their American counterparts, European banks generally hold mortgage loans on their balance sheets. As a result, they have to offset more capital against those loans. Despite the objections, the committee, based in Basel, Switzerland, wants the rules finalized by the end of the year.

Mr. Hamers, who said his bank is "probably the most pan-European bank there is", said that more consolidation in the sector would be good, though he said that it was more likely that this would happen within countries rather than across borders, since there remain restrictions on moving funds across borders.

"There is no freedom to move liquidity around. There is no freedom to move capital around," he said.

Mr. Hamers also cautioned against painting an overly bleak picture of Germany's banking sector, especially its biggest lender, Deutsche Bank, which has faced a litany of regulatory trouble in recent years. "Is it a matter of perception?" he asked, noting that the bank's capital is stronger than it was during the crisis. "I wouldn't be so quick saying German banks are weak," he said. "Deutsche Bank has litigation issues. Italian banks have nonperforming loans. Every bank has a different story," he said.

Write to Todd Buell at todd.buell@wsj.com and Hans Bentzien at hans.bentzien@wsj.com

(END) Dow Jones Newswires

October 19, 2016 06:45 ET (10:45 GMT)

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