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The European Commission urged changes in a report on Friday to improve the competitiveness of the bloc’s banking sector, laying the political groundwork for what could become a substantial overhaul of EU banking rules to unlock billions in capital.
Despite a decade of progress under the Banking Union, Europe’s banking market remains fragmented along national borders. The Commission argues that this limits the banking sector’s ability to support businesses and households across the EU.
The report proposes measures to encourage more cross-border banking, simplifying supervisory rules and deepen the integration of EU capital markets through closer links with the Savings and Investments Union. It follows a year-long push from the Commission to simplify rules, which Brussels says will not lead to de-regulation even if the proposals look to scale back rules previously enforced by the European Union.
According to the Commission, removing these barriers could help finance the bloc’s estimated €1.2 trillion in annual investment needs, including in clean technology, defence and artificial intelligence.
National authorities could lose some control over banks
The proposals would reduce national discretion as banking rules become more harmonised at EU level. National authorities could have less control over the capital and liquidity held by local subsidiaries, and less scope to block or impose conditions on cross-border mergers and acquisitions.
Deposit protection and bank insolvency procedures could also be more closely coordinated at EU level.
The Commission argues that a single banking market cannot work if countries continue to add to, interpret or enforce rules differently. The changes could also reduce the amount of capital some banks must hold to absorb losses.
Freeing up capital for lending
Cross-border banking groups currently have to meet capital and liquidity requirements at both parent company and subsidiary level, which can leave resources tied up in individual countries.
The Commission wants authorities responsible for parent banks to have greater powers over entire banking groups.
For groups such as UniCredit, BNP Paribas and Santander, the ECB would exercise these powers alongside national authorities. Smaller groups would generally remain under national supervision, with ECB oversight within the Banking Union.
Parent banks would have to ensure that subsidiaries have sufficient resources during normal operations and crises. The Commission says the changes could free up capital, cut compliance and funding costs, increase lending and encourage cross-border expansion.
However, the Commission stressed that safeguards for creditors and depositors would remain essential. The report states: “Measures addressing prudential barriers to integration must be accompanied by appropriate safeguards ensuring financial stability across the EU.”
The Commission also plans measures to discourage banks from holding too much debt issued by a single government and to encourage them to diversify their sovereign bond portfolios.
Protecting deposits
The Commission plans to review the deposit-insurance framework to ensure equal protection for covered deposits throughout the Banking Union. The changes would also seek to prevent the failure of a cross-border banking group from creating liabilities for individual member states, national budgets or deposit-guarantee schemes.
The Commission also wants to make the handling of failing cross-border banks more predictable, allow funds to be distributed more effectively within groups during periods of stress and strengthen emergency liquidity support.
Further changes
Differences in how anti-money laundering and consumer protection rules are applied across the EU make it expensive for banks to operate across borders and offer EU-wide products. Banks may need separate IT systems and processes to comply with different national requirements.
The Commission will pursue greater harmonisation, including common anti-money laundering rules from July 2027. It will also examine whether national consumer protection requirements unnecessarily fragment the market and assess how regulation can support digital banking and innovation while protecting consumers and maintaining cybersecurity.
The Commission’s report lays the groundwork for measures due to be proposed in the first quarter of 2027.