Key facts
- Europe's banking market is too fragmented to fund the continent's digital, economic-security, and defense ambitions, according to EBA chair François-Louis Michaud.
- National differences in tax, insolvency, and consumer protection make cross-border lending expensive for EU banks.
- Wholesale banking by European financial institutions has declined, with non-bank financial institutions and foreign players increasing their share of funding.
- The EBA is working to reduce regulatory burdens to allow banks to focus on significant risks.
- Strengthening European banks is seen as crucial for competing with US financial institutions.
The fragmented nature of Europe's banking market is hindering its ability to finance crucial continental ambitions, including digitalization, economic security, and defense, according to François-Louis Michaud, chair of the European Banking Authority. In an interview with Reuters, Michaud explained that while European banks are financially sound, national disparities in tax, insolvency, and consumer protection laws make cross-border operations expensive and prevent the achievement of necessary economies of scale.
Michaud emphasized that greater cross-border lending and financial integration are key, rather than solely relying on mergers. He noted that these national differences have led to a decline in wholesale banking by European institutions, with funding increasingly coming from non-bank entities and international players. The EBA is reportedly working to streamline regulations, reducing compliance burdens to allow banks and supervisors to concentrate on managing significant risks. The push to strengthen European banks also aims to enhance their competitiveness against their US counterparts, which Michaud observed have greater capital for expansion and are exploring new business areas.