European Commission calls for strengthening the competitiveness of the banking sector and expanding bank integration within the Union

Brussels, July 17 (KUNA) -- The European Commission called on Friday for enhancing the competitiveness of the banking sector in the European Union and removing barriers to cross-border bank mergers, enabling banks to achieve larger scales and compete with global peers, particularly in the United States. This came in a Commission report on the competitiveness of the banking sector and the single market for banking services, as part of the Savings and Investment Union strategy aimed at mobilizing additional financing to support the European economy.

Speaking at a press conference, European Commissioner for Financial Services, Savings and Investments Maria Luís Albuquerque said, “European banks remain largely fragmented along national lines, which prevents them from reaching the scale necessary to compete globally.” She added that while European banks “are robust, have strong capital bases, benefit from effective supervisory oversight, and generate profits, these are necessary but not sufficient conditions to ensure their competitiveness.”

She pointed out that Europe faces massive investment needs in areas such as innovation, digital transformation, defense, energy security, and climate change mitigation, and that banks will continue to play a pivotal role in financing these investments.

In the same vein, the report noted that “the European banking sector still operates within an incomplete single market and banking union, which limits cross-border activities, reduces competition, and prevents banks from achieving the scale needed to compete both within Europe and abroad.”

The European Commission emphasized the need to remove restrictions hindering cross-border banking and to enable banking groups to manage their capital and liquidity more efficiently, while providing appropriate safeguards for host countries and strengthening trust among supervisory authorities. It also stressed that completing the European Banking Union, including establishing a new common deposit insurance scheme, is essential to boosting sector competitiveness.

The Commission observed that the EU’s broad application of international Basel Committee on Banking Supervision standards to all banks, not only large internationally active institutions, “has strengthened the resilience of the banking system but has also increased complexity and imposed disproportionate burdens, particularly on smaller banks and on activities crucial to the European economy, such as financing for small and medium-sized enterprises (SMEs), mortgages, project finance, and trade.”

It noted that several major economies are adapting the implementation of international standards to suit the specifics of their banking systems, which may place European banks at a competitive disadvantage compared to their rivals.

The report also stated that “European banking legislation has become excessively complex due to the overlap of prudential supervision, crisis management, and supervisory reporting requirements.” According to the European Banking Authority, compliance with regulatory requirements costs European banks more than 24 billion euros (27.46 billion US dollars) annually, of which more than 11 billion euros (12.58 billion US dollars) is dedicated to reporting.

The Commission stressed that simplifying regulatory rules and adopting a more proportionate approach for smaller banks could support financing for SMEs and households and enhance the diversity of funding sources in the EU. It also urged member states to “avoid imposing additional national requirements on EU rules and to refrain from creating unjustified obstacles to mergers and cross-border banking activities.”

In this regard, the report warned that “unjustified national interventions often hinder the ability of European banks to merge and expand within the single market,” without naming any specific country.

The European Commission confirmed that it will propose a comprehensive legislative package to reform the regulatory framework for the banking sector in the first quarter of 2027, aiming to remove obstacles limiting the competitiveness of European banks and enhancing their capacity to finance the European economy. (End) ARN/ABK