The European Commission recently adopted a communication addressing the competitiveness of the EU banking sector to strengthen the Single Market for banking.

European Commission President Ursula von der Leyen stated that “getting capital flowing is how we will get Europe growing“.

“Our Savings and Investments Union needs a strong, competitive banking sector at its heart,” she stated.

She added that the latest communication “takes a clear step in this direction, recalibrating our approach to risk, and enabling growth and innovation while maintaining financial stability”.

The core objective is to build a more integrated, efficient, and competitive banking sector that can strengthen Europe’s economy.

This sector achieves this by financing growth, innovation, and strategic priorities through a better-balanced regulatory framework.

The framework creates conditions for banks to take prudent risks while safeguarding resilience and delivering better services.

It simultaneously preserves financial stability and fosters sustainable growth.

This communication forms a key pillar of the Commission’s Savings and Investments Union strategy.

This strategy relies on a banking sector with the strength and scale to finance strategic priorities like innovation, the clean transition, and defence.

It simultaneously delivers high-quality financial services to households and businesses.

Following a public consultation and exchanges with member states, stakeholders, and supervisory authorities, the Commission identified three main challenges.

These challenges limit the banking sector’s ability to support the EU economy effectively.

First, the sector remains too fragmented along national lines.

This fragmentation prevents EU banks from scaling up and competing globally or finding efficiencies across borders.

Second, the way international banking standards, known as Basel III standards, are transposed does not reflect EU specificities.

The framework needs to work better for both large and small banks.

Third, parts of the regulatory framework are too complex and burdensome, requiring simplification.

This complexity includes interactions between microprudential, macroprudential, and resolution rules.

Boosting competitiveness requires a cultural shift in banking toward responsible and measured risk-taking.

Simplifying the regulatory framework and completing the Banking Union helps citizens and businesses access better products.

The communication identifies key measures built around three primary objectives.

The first objective focuses on removing cross-border barriers and fostering market integration.

The path forward reduces prudential and non-prudential barriers so banks can reach global scale.

Specific measures include allowing cross-border groups to use capital and liquidity more efficiently.

Groups can redirect excess funds to productive uses without hampering local financing capacities.

Another measure involves strengthening common safeguards by proposing a simpler deposit protection mechanism.

This mechanism replaces the 2015 European Deposit Insurance Scheme proposal and builds on fully funded safety nets.

A final measure involves closer monitoring of anti-money laundering and consumer protection frameworks.

The second objective involves implementing international standards while accounting for EU specificities.

The EU remains committed to applying international standards while better reflecting sector realities.

Measures include re-assessing implementation that may limit lending capacity.

They also include revising prudential and corporate governance rules to reflect bank size and business models.

The third objective focuses on simplifying the regulatory framework to reduce administrative burdens.

Trust depends on safeguards, but unnecessary complexity should be reduced.

Key highlights include simplifying the capital stack and harmonising macroprudential buffers.

They also include standardising resolution capital requirements and adjusting criteria for small and non-complex institutions.

The Commission sought stakeholder feedback and welcomes views in the months to come.

The Commission plans to propose a package of measures in the first quarter of 2027.

This package will amend the regulatory framework in line with the One Europe, One Market roadmap.

In parallel, the communication calls on member states, supervisory authorities, and the industry to continue improvement efforts.

The Savings and Investments Union strategy aims to improve capital channeling into productive investment, while it also aligns with the EU Competitiveness Compass and related market reports.