Fragmentation within the European Union’s banking market is limiting lenders’ ability to achieve the scale needed to finance investment in areas including digitalisation, economic security and defence, according to European Banking Authority chair François-Louis Michaud.
In an interview with Reuters, Michaud said European banks remain highly capitalised and continue to report solid profits, but face constraints arising from differences within the EU’s single market.
He described the European single market as “not as single as it should be.”
Europe Faces Investment Requirements Across Multiple Sectors
“We know that Europe must finance all these transformations: digitalization, the environment, demography, economic security, and defense,” Michaud said. “It’s an existential question for Europe’s future.”
The European Commission is pursuing measures intended to support investment in digitalisation, defence and economic security.
Its competitiveness agenda also includes efforts to facilitate cross-border banking activity and deepen integration within the EU single market.
National Rules Add Costs for Cross-Border Banking
Michaud said mergers between banks are not the only way to address the issue.
From the EBA’s perspective, increased cross-border lending and greater financial integration could also contribute to increasing the scale of banking activity within the EU.
Differences between member states in taxation, insolvency rules and consumer protection requirements can increase the costs and complexity involved when banks offer standardised products across multiple EU markets, Michaud said.
According to the EBA chair, these differences can also limit banks’ ability to achieve economies of scale across the Union.
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