Report
The Commission’s review of competitiveness in the Single Banking Market should assess where changes to prudential rules improve banks’ ability to support productive investment and sustainable lending in the real economy. Simplification should be judged against clear public interest outcomes, including capital strength, resilience, and better credit allocation.
Finance Watch’s response to the European Commission’s call for evidence argues that the debate on competitiveness in the Single Banking Market must not be used to justify prudential weakening. The comparative profitability of EU banks is not determined by prudential regulation, and bank profitability has, in any case, been strong in recent years. The policy objective is not how to make banks more profitable for their own sake, but how to ensure that banking regulation supports a safe, resilient financial system that channels finance to productive parts of the economy. Any future simplification should therefore be tied to clear public interest outcomes, including stronger capital, sustained lending capacity, and better financing for households, firms and strategically important projects.
Finance Watch calls on the Commission to use this initiative to simplify, where appropriate, without reducing resilience. That means preserving high standards of supervision and supervisory independence, resisting industry pressure for deregulation or promotional mandates, and focusing reform on measures that genuinely improve outcomes for the real economy. The response highlights several priorities, including phasing out the regulatory use of internal models, raising leverage ratios, simplifying parts of the capital stack, and supporting a more diverse banking ecosystem with a stronger role for small, local, community and public banks. In short, the Commission should tidy up the rulebook in ways that strengthen capital, reduce fragility, and improve the quality of bank lending, not just the quantity of bank profits.
Read the full response
