This paper investigates how capital requirements and ratios impact bank competitiveness, measured by profit efficiency, using Data Envelopment Analysis. Researchers analyzed data from European Central Bank-supervised banks, incorporating supervisory data, capital requirements, and macroeconomic factors. The study found that capital requirements, whether microprudential or macroprudential, did not significantly affect profit efficiency. However, capital ratios exhibited a significant non-linear relationship with profit efficiency. This relationship followed an inverted U-shape, indicating that profit efficiency increased with higher capital up to an approximate common equity tier 1 ratio of 18%. Beyond this threshold, further increases in capital ratio started to reduce profit efficiency. These results remained consistent across various robustness checks, including different sample scopes and efficiency measures. The findings highlight the importance of robust capital ratios for bank resilience and effective risk management for policymakers. They also emphasize the complex interplay between bank capital, regulatory policy, and overall competitiveness within the banking sector. Ultimately, the research contributes to the ongoing discussion about the European banking system's capacity to foster economic growth and innovation.