The European Commission has outlined a series of measures aimed at making the European Union’s banking sector more integrated, competitive and capable of supporting economic growth. The proposals, set out in a Communication on the competitiveness of the EU banking sector adopted on 17 July, seek to strengthen the Single Market for banking while maintaining financial stability and the resilience of the sector.

The initiative forms part of the Commission’s broader Savings and Investments Union (SIU) strategy, which aims to improve the way savings are channelled into productive investment. A stronger banking sector, according to the Commission, is needed to help finance strategic priorities including innovation, the clean transition and defence, while ensuring that households and businesses have access to high-quality financial services.

The Commission’s approach follows a public consultation and discussions with Member States, stakeholders and supervisory authorities. These exchanges identified three key challenges that, in its view, are limiting the banking sector’s ability to contribute fully to the European economy.

The first is fragmentation. Despite the existence of a Single Market, banking activity remains largely divided along national lines. This can make it more difficult for banks to expand across borders, achieve economies of scale and compete with major international institutions. The Commission argues that reducing these barriers could allow banks to operate more efficiently and provide customers with a wider range of services at more competitive prices.

The second challenge concerns the implementation of international banking standards, particularly the Basel III framework. While the EU remains committed to international standards and maintaining a global level playing field, the Commission believes that their implementation should better reflect the specific characteristics of European banks. It is therefore considering whether certain rules may be unnecessarily limiting banks’ capacity to lend, as well as whether prudential and corporate governance requirements should be adapted to better account for differences in banks’ size, business models and activities.

The third challenge is regulatory complexity. The Commission argues that the interaction between micro prudential, macroprudential and resolution rules can be difficult to navigate and that reporting requirements can create unnecessary administrative burdens. The proposed approach would seek to simplify the framework while preserving the safeguards needed to maintain confidence and financial stability.

Among the key measures under consideration is allowing cross-border banking groups to use capital and liquidity more efficiently across the EU. This could enable banks to redirect excess resources to areas where they can be used more productively, while maintaining their ability to finance local economies. The Commission stresses that any such changes would need to preserve financial stability both across the Single Market and within individual Member States.

The Commission also plans to explore stronger common safeguards. One proposal is for a simpler and more effective common deposit protection mechanism within the Banking Union. This would replace the European Deposit Insurance Scheme proposal put forward in 2015 and build on existing national and central safety nets, which the Commission notes are now fully funded.

In addition, closer monitoring of EU anti-money laundering and consumer protection frameworks, together with their national implementation, is intended to make it easier for banks to provide services across borders.

The proposals reflect what the Commission describes as a need for a cultural shift towards responsible and measured risk-taking. The underlying argument is that a competitive banking sector should not be achieved by weakening safeguards, but by creating a regulatory environment that enables banks to take prudent risks while remaining resilient.

The Commission has also identified several areas for regulatory simplification. These include simplifying the capital stack, further harmonising macroprudential buffers, and standardising resolution capital requirements and processes. It also proposes reconsidering the criteria and thresholds applied to “small and non-complex institutions”, potentially allowing their regulatory requirements to better reflect their size and risk profile.

The proposals nevertheless raise broader questions about how to balance competitiveness and financial stability. Greater cross-border integration could help European banks achieve scale and improve efficiency, but it also increases the importance of effective supervision and common safeguards. Similarly, adapting international standards to European circumstances may support lending and competitiveness, but any divergence from global rules could create concerns about consistency and the international level playing field.

The Commission is expected to propose a package of legislative and regulatory measures in the first quarter of 2027, in line with the objectives of its One Europe, One Market roadmap. In the meantime, stakeholders are invited to continue providing feedback, while Member States, supervisory authorities and the banking industry are encouraged to pursue their own efforts to improve competitiveness.

Ultimately, the Commission’s initiative seeks to address a long-standing tension in European banking: how to create a sector large and flexible enough to finance growth and strategic investment, while retaining the safeguards that protect financial stability. Its success will depend on whether the proposed reforms can reduce fragmentation and unnecessary complexity without compromising the resilience that underpins confidence in the banking system.

References

European Commission. (2026, July 17). Commission outlines measures to strengthen Europe’s banking sector and support growth. Retrieved from European Commission – Press Release : https://ec.europa.eu/commission/presscorner/detail/en/ip_26_1637

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