European Banking Sector Builds Resilience as Fragmentation Limits Competitiveness

European banking policy should focus on completing the banking union and improving capital allocation while preserving resilience, a priority for the broader competitiveness of the European Union.

A sound, resilient banking sector is essential to allocate capital efficiently and support investment across the EU economy. The sector’s competitiveness therefore depends on both operational efficiency and financial stability.

The main structural obstacles are fragmented banking and capital markets, limited economies of scale and country-level rules that make it harder to operate across national borders. European banking competitiveness also remains distinct from the wider competitiveness of the European Union’s economy.

The recommendations include completing the banking union, integrating macroprudential decision-making at the banking-union level and simplifying capital and loss-absorption rules without lowering aggregate requirements.

Robust capital requirements are critical to banking-sector resilience and EU competitiveness. The European banking sector’s weakened global position is linked to the 2007–2017 financial and euro-area crisis period.

The European Commission has pledged to publish a report on the EU banking sector in 2026.