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Brussels, |
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One Europe, One Market
Brussels Targets Banking Barriers
The Commission wants to remove national obstacles to cross-border banking, improve the use of capital and liquidity, and replace the stalled EU deposit insurance proposal. The real test will come with the legislative package expected in early 2027.
By eEuropa
Brussels, 29 July, 2026
The European Commission has presented a new strategy to make the EU banking sector more integrated, competitive and capable of financing Europe’s economic and strategic priorities.
Its proposals address national market fragmentation, the European implementation of international banking standards and growing regulatory complexity—but several politically sensitive choices have yet to be translated into legislation.
The European Commission has set out a potentially far-reaching reset of EU banking policy, placing financial integration and the capacity to finance growth at the centre of Europe’s competitiveness agenda.
In a Communication adopted on 17 July 2026, the Commission argues that European banks are resilient but still operate within a market fragmented along national lines. This prevents them from reaching sufficient scale in important market segments, limits the efficient allocation of capital and liquidity and weakens their ability to compete internationally. The initiative is not yet a legislative reform. It establishes the political direction for a package of measures that the Commission intends to propose in the first quarter of 2027 under the “One Europe, One Market” roadmap.
Banking competitiveness becomes a strategic priority
Banks remain the main source of external financing for European businesses. According to the Commission’s supporting questions and answers, they provide approximately 75% of corporate lending in the EU.
Their capacity to lend therefore directly affects investment in innovation, clean technologies, industrial transformation, infrastructure and defence. This explains why banking competitiveness is being treated as a component of Europe’s economic security rather than merely as a financial-sector concern.
The Communication forms part of the EU’s Savings and Investments Union, which seeks to channel European savings more effectively towards productive investment. It also responds to the diagnoses contained in the Letta and Draghi reports: Europe has substantial financial resources but remains divided into national markets that prevent capital from circulating and being deployed efficiently.
Three obstacles to a genuinely European banking market
The Commission identifies three structural problems:
Freer movement of capital—with safeguards
One of the most significant proposals concerns the use of capital and liquidity within cross-border banking groups.
The Commission wants banking groups to be able to allocate surplus resources more efficiently across different EU subsidiaries. Capital could consequently move to the parts of a group where it can finance more productive activity.
This is economically important but politically sensitive. National authorities traditionally want to ensure that the local subsidiary of a cross-border group retains sufficient resources to protect domestic depositors and finance the national economy, especially during a crisis.
The Commission therefore insists that greater flexibility must not compromise financial stability, either in individual Member States or across the Single Market. The future legislation will have to reconcile the interests of the group’s home and host countries and demonstrate that common European safeguards are strong enough to justify greater financial integration.
A new approach to deposit protection
The Commission also plans to propose a simpler and more effective common deposit protection mechanism for the Banking Union.
Significantly, this would replace the European Deposit Insurance Scheme proposal presented in 2015, which has remained blocked because Member States could not agree on the mutual sharing of banking risks.
The new approach would build on existing national and central safety nets, which the Commission notes are now fully funded. However, its exact structure, the degree of risk-sharing and the relationship between national funds and a common mechanism have not yet been defined.
Deposit protection may therefore become the political test of the entire strategy. Cross-border banks cannot operate as genuinely European groups if depositors and banking risks continue to be viewed almost exclusively through national frameworks. At the same time, governments will resist arrangements that they believe could make their national systems responsible for banking failures elsewhere.
Simplification or deregulation?
The Commission proposes simplifying the capital framework, further harmonising macroprudential buffers and standardising resolution capital requirements and processes. It also intends to reconsider the thresholds and criteria used to identify “small and non-complex institutions”.
Some prudential and corporate-governance rules could be revised to reflect more closely the different sizes and business models of EU banks.
The way certain international standards have been implemented will also be reassessed where it may unnecessarily restrict lending.
The political language is carefully balanced. Brussels is not proposing to abandon Basel III or weaken financial stability. It is instead calling for responsible and measured risk-taking within a more proportionate framework.
Nevertheless, the distinction between useful simplification and regulatory weakening will have to be examined measure by measure. Changes that release capital for productive lending could support growth, while poorly calibrated reductions in safeguards could increase systemic risk.
What it could mean for businesses and consumers
For businesses, a more integrated banking market could increase access to cross-border financing and intensify competition between lenders. Companies operating in several Member States could benefit from more consistent services and fewer national barriers.
Smaller banks may gain from proportionate reporting and prudential requirements, although greater market consolidation could also strengthen larger groups and increase competitive pressure on local institutions.
Consumers could potentially obtain a broader choice of financial products at more competitive prices. Much will depend, however, on whether consumer-protection, anti-money-laundering and insolvency rules become sufficiently consistent across Member States to make cross-border services commercially viable.
For banks, the direction is clear: European scale, more efficient allocation of resources and a simpler rulebook. The final balance between opportunity and additional restructuring obligations will only become visible when the legislative texts are published.
What happens now
The Communication itself does not amend the existing banking rules. Stakeholders may continue submitting comments in the coming months, while the Commission develops the legislative package expected in the first quarter of 2027.
The proposals will then have to be negotiated by the European Parliament and the Council. Discussions are likely to focus on capital and liquidity within cross-border groups, common deposit protection, the implementation of international standards and the safeguards accompanying regulatory simplification.
Member States, supervisory authorities and the banking industry are also being asked to act within their respective competences rather than wait for EU legislation.
Conclusion
The Commission has correctly identified the central contradiction of European banking: the EU has created common supervision and an extensive single rulebook, but banks, capital and risks are still managed to a significant degree within national boundaries.
The new strategy recognises that resilience alone is no longer sufficient. Europe needs a banking system capable of financing investment at the scale demanded by technological competition, the clean transition and new security priorities.
The real challenge is political. A genuine Single Market for banking requires Member States to accept greater movement of capital, stronger common safeguards and a degree of shared responsibility for financial stability.
The 2027 package will show whether the initiative represents a genuine completion of the EU Banking Union or another attempt to integrate European finance without overcoming the national interests that have blocked it for more than a decade.
Explore eEuropa’s EU Banking & Financial Services Hub and its Banking and Finance Legislative Activity for continuing policy and legislative monitoring.
Brussels, 29 July, 2026
The European Commission has presented a new strategy to make the EU banking sector more integrated, competitive and capable of financing Europe’s economic and strategic priorities.
Its proposals address national market fragmentation, the European implementation of international banking standards and growing regulatory complexity—but several politically sensitive choices have yet to be translated into legislation.
The European Commission has set out a potentially far-reaching reset of EU banking policy, placing financial integration and the capacity to finance growth at the centre of Europe’s competitiveness agenda.
In a Communication adopted on 17 July 2026, the Commission argues that European banks are resilient but still operate within a market fragmented along national lines. This prevents them from reaching sufficient scale in important market segments, limits the efficient allocation of capital and liquidity and weakens their ability to compete internationally. The initiative is not yet a legislative reform. It establishes the political direction for a package of measures that the Commission intends to propose in the first quarter of 2027 under the “One Europe, One Market” roadmap.
Banking competitiveness becomes a strategic priority
Banks remain the main source of external financing for European businesses. According to the Commission’s supporting questions and answers, they provide approximately 75% of corporate lending in the EU.
Their capacity to lend therefore directly affects investment in innovation, clean technologies, industrial transformation, infrastructure and defence. This explains why banking competitiveness is being treated as a component of Europe’s economic security rather than merely as a financial-sector concern.
The Communication forms part of the EU’s Savings and Investments Union, which seeks to channel European savings more effectively towards productive investment. It also responds to the diagnoses contained in the Letta and Draghi reports: Europe has substantial financial resources but remains divided into national markets that prevent capital from circulating and being deployed efficiently.
Three obstacles to a genuinely European banking market
The Commission identifies three structural problems:
- The first is national fragmentation. Even within the Banking Union, regulatory practices, consumer rules, taxation, anti-money-laundering implementation and supervisory expectations can make cross-border banking more difficult and expensive.
- The second concerns the way Basel III and other international banking standards are incorporated into EU law. The Commission remains committed to international standards but wants their European implementation to reflect more accurately the characteristics of EU banks, including their size, business models and role in financing the economy.
- The third problem is regulatory complexity. Microprudential, macroprudential and resolution requirements have developed through partially overlapping layers. Reporting obligations and the interaction between capital buffers can be difficult to navigate for banks and supervisory authorities, with a particularly disproportionate effect on smaller institutions.
Freer movement of capital—with safeguards
One of the most significant proposals concerns the use of capital and liquidity within cross-border banking groups.
The Commission wants banking groups to be able to allocate surplus resources more efficiently across different EU subsidiaries. Capital could consequently move to the parts of a group where it can finance more productive activity.
This is economically important but politically sensitive. National authorities traditionally want to ensure that the local subsidiary of a cross-border group retains sufficient resources to protect domestic depositors and finance the national economy, especially during a crisis.
The Commission therefore insists that greater flexibility must not compromise financial stability, either in individual Member States or across the Single Market. The future legislation will have to reconcile the interests of the group’s home and host countries and demonstrate that common European safeguards are strong enough to justify greater financial integration.
A new approach to deposit protection
The Commission also plans to propose a simpler and more effective common deposit protection mechanism for the Banking Union.
Significantly, this would replace the European Deposit Insurance Scheme proposal presented in 2015, which has remained blocked because Member States could not agree on the mutual sharing of banking risks.
The new approach would build on existing national and central safety nets, which the Commission notes are now fully funded. However, its exact structure, the degree of risk-sharing and the relationship between national funds and a common mechanism have not yet been defined.
Deposit protection may therefore become the political test of the entire strategy. Cross-border banks cannot operate as genuinely European groups if depositors and banking risks continue to be viewed almost exclusively through national frameworks. At the same time, governments will resist arrangements that they believe could make their national systems responsible for banking failures elsewhere.
Simplification or deregulation?
The Commission proposes simplifying the capital framework, further harmonising macroprudential buffers and standardising resolution capital requirements and processes. It also intends to reconsider the thresholds and criteria used to identify “small and non-complex institutions”.
Some prudential and corporate-governance rules could be revised to reflect more closely the different sizes and business models of EU banks.
The way certain international standards have been implemented will also be reassessed where it may unnecessarily restrict lending.
The political language is carefully balanced. Brussels is not proposing to abandon Basel III or weaken financial stability. It is instead calling for responsible and measured risk-taking within a more proportionate framework.
Nevertheless, the distinction between useful simplification and regulatory weakening will have to be examined measure by measure. Changes that release capital for productive lending could support growth, while poorly calibrated reductions in safeguards could increase systemic risk.
What it could mean for businesses and consumers
For businesses, a more integrated banking market could increase access to cross-border financing and intensify competition between lenders. Companies operating in several Member States could benefit from more consistent services and fewer national barriers.
Smaller banks may gain from proportionate reporting and prudential requirements, although greater market consolidation could also strengthen larger groups and increase competitive pressure on local institutions.
Consumers could potentially obtain a broader choice of financial products at more competitive prices. Much will depend, however, on whether consumer-protection, anti-money-laundering and insolvency rules become sufficiently consistent across Member States to make cross-border services commercially viable.
For banks, the direction is clear: European scale, more efficient allocation of resources and a simpler rulebook. The final balance between opportunity and additional restructuring obligations will only become visible when the legislative texts are published.
What happens now
The Communication itself does not amend the existing banking rules. Stakeholders may continue submitting comments in the coming months, while the Commission develops the legislative package expected in the first quarter of 2027.
The proposals will then have to be negotiated by the European Parliament and the Council. Discussions are likely to focus on capital and liquidity within cross-border groups, common deposit protection, the implementation of international standards and the safeguards accompanying regulatory simplification.
Member States, supervisory authorities and the banking industry are also being asked to act within their respective competences rather than wait for EU legislation.
Conclusion
The Commission has correctly identified the central contradiction of European banking: the EU has created common supervision and an extensive single rulebook, but banks, capital and risks are still managed to a significant degree within national boundaries.
The new strategy recognises that resilience alone is no longer sufficient. Europe needs a banking system capable of financing investment at the scale demanded by technological competition, the clean transition and new security priorities.
The real challenge is political. A genuine Single Market for banking requires Member States to accept greater movement of capital, stronger common safeguards and a degree of shared responsibility for financial stability.
The 2027 package will show whether the initiative represents a genuine completion of the EU Banking Union or another attempt to integrate European finance without overcoming the national interests that have blocked it for more than a decade.
Explore eEuropa’s EU Banking & Financial Services Hub and its Banking and Finance Legislative Activity for continuing policy and legislative monitoring.
