Consultation response
Finance Watch responds to the European Commission’s consultation on the competitiveness of the EU banking sector, warning that the review should not become a route to deregulation. Europe can and should simplify bank rules, but it must do so without weakening the safeguards that have made banks more resilient since the financial crisis.
The main obstacles to achieving the objectives of the Savings and Investments Union are not a shortage of bank credit. In fact the EU economy remains too dependent on bank lending, when deeper and more integrated capital markets would be better suited to financing higher risk and long term investment. At the same time, bank lending increasingly favours financial firms over the proposed beneficiaries of the SIU, namely SMEs.
Continued fragmentation is also a major barrier to improving capital mobility across the EU and channelling savings into productive investment. This is not just a technical problem but a political one. Divergent supervisory practices, national options and discretions, continue to reflect narrow national interests and keep banking and capital markets segmented across member states. Overcoming these barriers should be a priority.
Finance should be judged by how well it serves the real economy under conditions of fair competition, not by international market share alone. In that context, bank mergers and acquisitions are not an end in themselves, especially where consolidation increases concentration and systemic risk. Nor would lower capital requirements necessarily direct more finance to the real economy in the short term. They would, however, weaken banks’ ability to support the economy over time.
Where the bank rulebook is overly complex, Finance Watch proposes a package of reforms to simplify the framework while preserving resilience. These include phasing out the regulatory use of internal models, rebalancing leverage and risk based requirements, simplifying the capital stack and macroprudential framework, and creating a genuinely simpler regime for small banks. At a time of rising geopolitical and financial risks, resilience remains a vital precondition for durable lending and a more prosperous real economy.
