Strengthening the EU Banking Sector

The European Commission has recently released a report aimed at enhancing the competitiveness of the banking sector within the EU and is actively seeking feedback from stakeholders on its findings.

John Berrigan, the Director-General for Financial Stability, Financial Services and Capital Markets Union, emphasizes that the health of the banking sector is crucial for Europe’s economy as banks play a pivotal role in supporting households and financing businesses, particularly small and medium-sized enterprises (SMEs).

While Europe’s banks are generally viewed as resilient, profitable, and well-capitalised over fifteen years post the global financial crisis, inefficiencies persist in the EU banking landscape. A major impediment identified is the lack of scale among banks, which hinders their ability to grow, compete in the global market, and exploit efficiencies across borders.

In this newly published report, the Commission highlights three significant obstacles that compromise the competitiveness of EU banks and their capacity to bolster the broader economy:

• The banking sector is excessively fragmented along national borders, which limits the ability of EU banks to scale operations and compete internationally.
• The implementation of international banking standards, specifically Basel III, into the EU regulatory framework does not always cater to the unique characteristics of the EU banking ecosystem.
• Several components of the EU’s regulatory framework are overly complex and burdensome.

To address these obstacles, the Commission proposes several measures:

1. Enhancing market integration in the banking sector: The objective is to enable cross-border banks to manage their capital and liquidity more effectively across the EU. Alongside this, the Commission also aims to introduce a new proposal to update the European deposit insurance scheme established in 2015.
2. Adapting the regulatory framework to reflect the specificities of the EU banking sector: While maintaining a commitment to global standards, the implementation process will consider the particular characteristics of Europe’s financial system. Moreover, there will be an emphasis on improving proportionality within the regulations affecting smaller banks.
3. Simplifying the regulatory framework: Confidence in the banking system requires robust safeguards, yet the regulatory environment should avoid unnecessary complexity, making requirements clearer and more predictable for both banks and regulatory authorities.

The legislative proposals are expected to be delivered in the first quarter of 2027. In the meantime, stakeholders are invited to share their insights and opinions through an open call for feedback, which will remain active until September 17.

For Europe to cultivate a banking sector that can effectively support its economic ambitions and capital markets, prompt action is essential.

John Berrigan holds the position of Director-General for Financial Stability, Financial Services and Capital Markets Union at the European Commission. This article originally appeared on LinkedIn.