The European Commission presented a report on the competitiveness of the EU banking sector as part of its Savings and Investments Union Strategy. While European banks are currently resilient, well-capitalized, and profitable, the Commission argues that resilience alone is not enough. Banks must become more competitive to finance Europe’s major future investment needs, including digitalization, innovation, defence, energy security, and climate action.

The report identifies three main challenges:

1. Fragmented banking market – Cross-border banking remains limited due to an incomplete Single Market and Banking Union. The Commission calls for removing barriers, improving cross-border capital and liquidity management, and advancing Banking Union, including a new common deposit protection mechanism.

2. EU-specific regulatory issues – The implementation of Basel standards has increased resilience but also created complexity and disproportionate burdens, particularly for smaller banks and key sectors such as SME lending, mortgages, project finance, and trade finance. The Commission wants international standards to better reflect the EU banking landscape.

3. Excessive regulatory complexity – Overlapping prudential, resolution, and reporting rules impose significant compliance costs (over €24 billion annually) and reduce predictability. The Commission supports simplifying the rulebook and introducing more proportionate requirements for smaller, less complex banks.

The Commission will consult stakeholders further and plans to present a comprehensive legislative package in the first quarter of 2027 to address these issues.