EBA: EU banks cannot adequately finance the bloc's ambitions

Europe's fragmented banking market prevents lenders from reaching the scale needed to finance the continent's ambitions in the digital, economic security, and defense sectors, says François-Louis Michaud, head of the European banking supervisory body, as cited by Reuters.

Although European banks are well-capitalized and continue to report solid profits, they are constrained by a single market that "is not as single as it should be," stated the head of the European Banking Authority (EBA), explaining: "We know that Europe needs to finance all these transformations: digital, environmental, demographic, economic security, and defense. It is existential for Europe's future."

The European Commission is pushing for a competitiveness agenda aimed at mobilizing investment in digital, economic security, and defense, while exploring ways to facilitate cross-border banking and deepen the bloc's single market, notes Agerpres.

Mergers are not the only solution; from the EBA's perspective, increased cross-border lending and financial integration are equally important, Michaud assessed. He argues that it is costly for banks to offer standardized products across the bloc and achieve greater efficiency, given the differences in taxation, insolvency procedures, and consumer protection. As a result, corporate banking services provided by European financial institutions have declined over time, increasing the share of financing provided by non-bank institutions, private credit firms, and players from outside the EU. "Again, at a certain level, it becomes a matter of efficiency for banks," the head of the EBA stated.

He announced that the institution aims to cut red tape, allowing banks and supervisory authorities to focus on the most significant risks "instead of spending too much time and money merely for the sake of compliance."

While the banking reforms decided by the Basel Committee on Banking Supervision are now being implemented-and US regulators have called for easing requirements for some banks-Michaud said it is time to simplify rules in Europe, including those regarding capital, while maintaining resilience.

Strengthening European banks is also necessary to compete with US rivals, the official added, noting that many American lenders have substantial capital available for expansion, are growing their businesses in new areas, and are entering new markets.