Embracing harmonisation and diversity

Contribution by Patrick Montagner, Member of the Supervisory Board of the ECB, for Eurofi magazine

Frankfurt, 24 March 2026

In varietate concordia – “united in diversity” – is the motto of the European Union, and it also applies to banking regulation and supervision. Since the creation of the banking union, the co-legislators’ intention has been to harmonise the supervisory framework and deepen the Single Market. But this framework also respects the diversity of the institutions, be that in terms of business model, size or ownership structure – private, cooperative, mutual or public. The co-legislators’ goal was to equip the EU with a Single Rulebook, enabling depositors to choose their bank without worrying about weaker supervisory standards.

A harmonised framework provides tangible benefits. Consistent standards help prevent panic when a shock hits one category of institution and limit contagion. This is not hypothetical: the 2023 regional banking crisis in the United States showed how a differentiated, size-based supervisory framework can be less demanding, and therefore more fragile, when just one institution fails.

Moreover, size-based thresholds can constrain the growth of financial institutions. Crossing a regulatory threshold can abruptly change the rules applied, potentially discouraging expansion or leading to regulatory arbitrage.

The Single Rulebook also underpins the Single Market, facilitating the freedom of establishment and the freedom to provide services. The rise of online banking and the digitalisation of financial services have made it easier for many institutions to offer services across borders.

Recital 1 of the preamble to the Capital Requirements Directive^[1] clearly establishes that regulation and supervision must be exercised in a proportionate manner. This objective requires ongoing reassessment. Reflecting this, the report submitted by the ECB’s Governing Council to the European Commission^[2] proposed improvements to the framework applicable to small and non-complex institutions. These qualifiers are important: size alone does not determine the risk an institution faces or poses to the system.

In the euro area, where the ECB has supervisory competence, credit institutions are divided into two categories – significant institutions (SIs) and less significant institutions (LSIs) – to facilitate a practical division of labour. The ECB focuses on the largest and most systemically relevant institutions in the euro area, while national competent authorities supervise LSIs directly.

Currently, around 3,000 credit institutions operate in the euro area. Of these, 823 are consolidated under one of the 112 SIs supervised by the ECB. Even within the SIs, there are considerable differences in size, business model and ownership structure. Seven of the global systemically important banks identified by the Financial Stability Board are SIs, but many other SIs operate in a single country and remain relatively small if their domestic market is limited. As a result, the intensity of supervision by the Joint Supervisory Teams varies significantly, including in terms of resources, which determines the level of interaction with banks.

ECB Banking Supervision considers differences in business models by organising institutions into peer groups or “clusters” to facilitate meaningful comparisons. These clusters are analytical tools rather than mechanisms to standardise institutions artificially; differences within clusters are fully recognised.

For example, in France and Germany, both of which have sizeable cooperative and mutualist sectors, institutions within these sectors pursue very different strategies. The way European banking supervision is carried out does not challenge these approaches, illustrating that common rules and joint supervision are compatible with diverse, country‑specific business strategies.

However, regardless of size, business model or ownership structure, the ECB expects all banks to continuously assess their risks and maintain robust internal controls and governance systems. Institutions should be able to make informed decisions and maintain a consistent and coherent risk appetite. This includes strong internal lines of defence, a well-balanced relationship between executive and supervisory functions and well-trained administrators who receive appropriate information from the executive functions.

In the “Streamlining supervision, safeguarding resilience” report^[3], the ECB has reviewed its intervention methods to prioritise actions and focus on the most relevant risks for the 112 SIs under its direct supervision.

There is, however, a factor that could profoundly reshape the European banking landscape: the scale of investment required to upgrade information systems. Investments in efficiency, cybersecurity and digitalised customer services are key not only to making credit institutions more competitive, but also to protecting against cyber threats.

By building on these foundations, banks can strengthen customer confidence, support sustainable profitability, ensure broad access to the integrated European market and maintain lasting competitiveness through investment in technology and innovation.