Making European banks fit for the future: promoting competition, safeguarding resilience

28 April 2026

By Claudia Buch, Chair of the Supervisory Board of the ECB

The European Commission has consulted on the competitiveness of European banks, and the ECB’s response is clear: Europe has an opportunity to make the banking sector fit for the future by promoting integration and competition while safeguarding resilience. Europe can maintain a resilient banking system that meets the needs of households and firms by maintaining the supervisory and regulatory pillars that keep it strong.

Well-functioning banking markets are vital to a healthy economy. This matters all the more in a harsher geopolitical environment, in the midst of a renewed energy shock and at a time when major investment is needed in sustainable energy, digital infrastructure, defence and innovative technology.

Any health check starts with a sound diagnosis. In the case of the banking sector, the ECB’s annual assessment shows that the sector is currently in fairly good shape. The reforms adopted after the global financial crisis, including enhanced supervision, have left European banks better capitalised, more liquid and more trusted by markets. This resilience is essential if banks are to serve the economy well. Well-capitalised banks can support lending and sustainable growth, including in periods of stress. The International Monetary Fund had a clear message in its recent Global Financial Stability Report: resilience is not an endpoint but a reminder of what needs to be done.

A proper diagnosis thus needs to look beyond the current conditions. It needs to take a forward-looking approach, assessing depositor protection, financial stability and banks’ ability to support the economy, thereby adopting a broader societal perspective. Banks are critical for the economy because they help shape how savings decisions are made, how investment is financed and how risks are shared. Although Europe relies partly on capital markets for financing, and while progress on the savings and investment union remains essential, banks will nonetheless continue to play a central role.

A broader diagnosis reveals where action is needed. Europe still lacks a truly integrated banking market. Around 80% of banks’ loan portfolios are invested nationally, while only 2% of deposits are held across borders. Cross-border merger activity has been subdued, and concentration has been on the rise in some markets.

This fragmentation comes at a high cost. Insufficient integration can impede efficient risk sharing. It can constrain banks’ investment in digital business models, where scale is often needed to make those investments worthwhile.

Overall, the diagnosis shows a resilient banking sector, but also a fragmented market structure that could weigh on future resilience, weaken stability and limit banks’ ability to compete. The ECB’s response to the consultation therefore sets out a clear course of action:

First, Europe can do more to promote integration and cross-border competition. Harmonising rules where legal disparities make it more expensive for banks to operate outside of the home market would support the Single Market. Barriers to the free flow of capital and liquidity within cross-border banking groups should be reduced, while keeping appropriate prudential standards in place.

The banking union should be completed. A European deposit insurance scheme will provide the same level of protection for all insured depositors. It will weaken the bank-sovereign nexus and may help incentivise cross-border activity. Further enhancing Europe’s crisis management framework is essential, so that banks that are not viable can exit the market without putting financial stability at risk.

Second, safeguarding resilience and financial stability is vital. Banks need strong financial and operational resilience to cope with a highly uncertain external environment, to withstand adverse shocks and to protect against cyber risks. As in health policy, prevention is key. It is the surest way to reduce vulnerabilities to risk spillovers from less regulated corners of the financial system. And prevention pays off: it significantly reduces the costs of future financial crises in terms of output losses, social costs and fiscal expenses.

Third, simplification is possible without undermining resilience. Complex rules and duplicated reporting take up resources that banks would be better off devoting to risk management and improved services. With this in mind, we have a comprehensive reform agenda for making European supervision more efficient, effective and risk-based, thus further enhancing proportionality.

The task ahead is to complete the banking union and remove the barriers that still fragment the Single Market. Almost two decades after the start of the global financial crisis, the European banking sector can be better integrated, and regulation and supervision can become less complex, without putting resilience and our achievements at risk.

This blog post was published as an opinion piece in several media outlets across the euro area.

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