A new phase for the Banking Union
The European debate on banking competitiveness is entering a new phase. After more than a decade focused on strengthening the resilience of the banking sector in response to the global financial crisis, European institutions are now shifting their attention towards a new priority: creating the conditions for banks to operate as truly integrated groups, achieve sufficient scale and contribute more effectively to the financing of the European economy.
Discussions on the future of the Banking Union, the Savings and Investments Union (SIU) and the recommendations included in the Draghi and Letta reports converge around the same conclusion; Europe has significant savings capacity, but its financial system remains structurally fragmented along national lines, limiting the efficient allocation of capital and preventing banks from fully exploiting the opportunities offered by the Single Market.
Against this backdrop, the European Commission is expected to present, in the first quarter of 2027, as part of the broader “One Europe, One Market” agenda, a new banking competitiveness package. The initiative appears not to be limited to a mere technical review of prudential rules, but rather represents a further step towards the completion of the Banking Union.
After consolidating financial stability through the Single Rulebook, the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), the objective is now to deepen market integration, strengthen common crisis management tools and reduce barriers that continue to limit the operation of cross-border banking groups. It also extends to the governance of banking regulation.
Among the emerging policy directions is the possibility of strengthening the mandate of the European Banking Authority (EBA), to ensuring that regulatory decisions take better account of their potential impact on competitiveness, proportionality and administrative burdens.
The fragmentation
The main obstacle identified by the Commission is no longer a lack of resilience, but instead, the persistence of fragmentation along national lines.
Despite progress achieved through the Banking Union, many banking activities remain primarily organised around domestic markets. This has the effect of limiting:
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the ability of cross-border banking groups to allocate capital and liquidity efficiently;
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the achievement of economies of scale;
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risk diversification across Member States;
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the competitiveness of European banks in global markets.
Crisis management and deposit insurance
One of the central elements of the future framework concerns the further development of European tools for banking crisis management. The existing crisis management architecture, including MREL (Minimum Requirement for Own Funds and Eligible Liabilities), which requires banks to maintain sufficient loss-absorbing and recapitalisation capacity, resolution planning, access to liquidity in resolution and deposit guarantee arrangements, aims to strengthen trust between national authorities and enable more effective management of cross-border banking groups.
Against this background, one of the remaining political challenges is the future design of the European Deposit Insurance Scheme (EDIS) – launched in 2015 but never approved.
The Commission appears to be moving towards a new legislative proposal to simplify the European deposit guarantee framework and better align responsibilities, funding arrangements, and crisis management tools.
The objective would not be to revive the original model of full mutualisation of national schemes, but rather to develop a more pragmatic and politically sustainable approach, capable of supporting the completion of the Banking Union.
The historical challenge remains the balancing of European integration and national responsibility. Member States support stronger European banking groups but remain concerned about the potential impact of cross-border banking failures on domestic markets and public finances.
Prudential reform: competitiveness through simplification
Prudential reform represents an important element of the package, but not its sole driver.
The areas under consideration include:
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greater proportionality for small and less complex banks;
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simplification of reporting requirements;
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review of certain aspects of international standards implementation;
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assessment of the prudential treatment of specific activities, including software investments and lending to unrated companies.
The objective is not to weaken post-financial crisis safeguards, but to remove unnecessary complexity and overlapping requirements that may constrain banks’ ability to support growth and investment.
In this context, the Commission also aims to strengthen accountability mechanisms for European authorities. A more explicit mandate for the EBA on competitiveness could support greater proportionality, simplification and harmonisation of the regulatory framework.
The Commission is also considering more systematic monitoring of the impact of capital requirements and their effects on the banking sector’s ability to finance the real economy.
Another important and highly political issue is the relationship between banks and sovereign debt. Brussels intends to address the concentration of sovereign exposures on bank balance sheets, thus encouraging greater portfolio diversification.
This relates to the sovereign-bank nexus, namely the link between banking risk and sovereign risk that became particularly visible during the European sovereign debt crisis.
Implications for banks and market participants
The evolution of the European regulatory framework could have significant implications for banks, investors and financial market participants.
Key implications include:
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greater relevance of cross-border strategies and banking consolidation;
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an evolving relationship between banking groups, national authorities and European institutions;
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increased importance of EU-level regulatory engagement;
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greater attention to the economic impact of regulatory and supervisory decisions;
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potential reduction of inefficiencies caused by regulatory fragmentation;
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a stronger role for banks in financing Europe’s strategic priorities, including innovation, infrastructure, defence and the green and digital transitions.
Taken together, these measures outline a coherent strategy: not only simplifying rules but creating the conditions for the European banking sector to operate with greater scale, integration and competitiveness.
How SEC Newgate can support market participants
As the European banking framework enters this new phase of reform, financial institutions, corporates, and industry associations will need to anticipate not only regulatory developments, but also their broader strategic implications.
SEC Newgate supports clients through:
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monitoring legislative developments and institutional negotiations across the European policy landscape;
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analysing regulatory proposals and assessing their impact on business models, competitiveness and market positioning;
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mapping the evolving positions of EU institutions, Member States and key stakeholders;
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supporting public affairs strategies and stakeholder engagement throughout the regulatory process.
Understanding both the technical aspects of regulatory reforms and the broader strategic direction of European policies is essential for organisations seeking to operate successfully in an increasingly integrated and competitive European financial market.