Deepening integration, enhancing scale and completing the Single Market

Speech by Patrick Montagner, Member of the Supervisory Board of the ECB, at an Institute of International Finance roundtable on “Growth and Competitiveness: Enhancing the EU Banking Regulatory Framework”

Brussels, 4 March 2026

When discussing the economic challenges facing Europe, we often focus on external pressures, which are indeed undeniably acute today. However, one of our most significant obstacles is internal: the fragmentation of our economies and our financial systems. European banks and financial institutions are operating below their optimal scale. Investors wishing to allocate capital across borders come up against unnecessarily complex hurdles. This fragmentation leads directly to higher costs for businesses and households.

Part of this fragmentation stems from differences in various policy areas which affect our supervisory framework and limit banks’ ability to operate on a truly pan-European basis. Consumer protection laws vary considerably across Member States, reflecting national preferences and legal traditions. Countries differ in their tax treatment of financial products and in their corporate insolvency frameworks, which remain a national competence. Consider core products like mortgages: each country has its own distinct legal requirements, documentation standards and enforcement practices. National jurisprudence has developed independently over decades, creating additional complexity. These differences complicate the management of non-performing loans, as recovery procedures and insolvency frameworks vary significantly across borders, affecting risk assessment and provisioning practices.

Such differences also prevent banks from leveraging their European presence efficiently. Banks operating across multiple countries must navigate parallel regulatory systems by duplicating compliance functions and fragmenting their capital and liquidity management. During periods of stress, this fragmentation intensifies uncertainty and constrains banks’ ability to deploy resources where they need them most.

We have already made substantial progress towards harmonising prudential regulation, particularly through European banking supervision. The Single Supervisory Mechanism and the Single Resolution Mechanism represent genuine advances. European banking supervision now operates at a level of scale and sophistication far beyond what we had 15 years ago. These successes demonstrate that we can achieve integration if we commit to doing so. However, we cannot stop here. The current geopolitical and economic environment drives us to seek greater strategic autonomy. We need financial institutions that can compete globally and a truly integrated market that channels savings efficiently towards productive investment.

We must remove the main barriers to capital and liquidity flows within banking groups. Regulators should reconsider any requirements that trap capital and liquidity at subsidiary level. Where relevant, banks should also explore opportunities for transforming subsidiaries into branches, a process known as “branchification”. The ECB and national supervisors share responsibility for making this possible by building the trust needed for cross-border operations.

Moreover, the crisis management framework for banks requires further development, while the resolution framework contains gaps that need closing. The reform of the crisis management and deposit insurance framework is particularly relevant here as the framework affects not only large cross-border institutions but also smaller banks that serve local communities and may be hit by crises. And we need a European deposit insurance scheme to ensure truly equal protection for depositors across the banking union. These proposals have been analysed extensively in many ECB publications and elsewhere. The path ahead is clear. What is required now is the political will to take the necessary steps.

The emergence of digital finance and payments presents an opportunity to advance integration in new ways. The digital euro, if implemented, would provide additional infrastructure for cross-border transactions and so foster financial integration. Digital tools allow banks to serve customers across borders more efficiently, but only if they are permitted to do so within the regulatory environment.

We should also recognise that banking and capital markets are complementary. Non-bank financial intermediation has grown substantially and generates risks that transcend national borders. But capital markets in Europe remain fragmented and are supervised primarily at national level. This creates potential gaps in risk oversight. A more European approach to supervision in this sector could both improve financial stability and facilitate cross-border investment.

Recent initiatives, including the savings and investments union, recognise that integrated capital markets are essential for financing strategic investments. Enrica Letta’s report on empowering the Single Market^[1] analysed these challenges comprehensively. The conclusion is consistent: Europe needs deeper financial integration to support productivity growth and maintain economic relevance.

Some countries have chosen deregulation in response to competitive pressure. This is not Europe’s path, nor should it be. Our approach must be different: we are not calling for weaker regulation, but for stronger integration.