Europe is entering a new phase in the evolution of its banking framework. With the launch of the Targeted Consultation on the Competitiveness of the EU Banking Sector (2026) and the parallel recommendations issued by the ECB High-Level Task Force on Simplification, Brussels and Frankfurt are signalling a strategic shift: strengthening resilience while making the regulatory framework simpler, more proportionate, and more conducive to growth.
For banks operating across the EU, and particularly for cross-border groups navigating complex prudential and supervisory environments, understanding the direction of travel is becoming a core element of strategic planning.
The debate is no longer only about financial stability. It is increasingly about how prudential regulation can support competitiveness without undermining resilience.
Why Competitiveness Has Returned to the Centre of the Debate
Over the past decade, the EU has built one of the most robust prudential frameworks in the world. The implementation of Basel III, the strengthening of supervisory powers under the Single Supervisory Mechanism (SSM), and enhanced resolution frameworks have significantly increased the resilience of the European banking sector.
However, this regulatory success has come at a cost. European banks operate in a global environment marked by increasing competition from US institutions, which benefit from deeper capital markets and more unified supervisory systems; growing competition from non-bank financial intermediaries; rapid technological transformation; and the need to finance large-scale investments linked to the green and digital transitions.
Against this backdrop, concerns have emerged that regulatory complexity, fragmentation, and cumulative prudential requirements may constrain EU banks’ ability to compete globally and support the real economy efficiently.
The Commission’s 2026 consultation reflects this concern. It seeks input on structural, supervisory, and regulatory factors that may affect the competitiveness of the EU banking sector, including the calibration and interactions of prudential requirements.
The Simplification Agenda: From Stability to Efficiency
In parallel, the ECB has presented recommendations to simplify the European banking framework while preserving financial stability.
The High-Level Task Force on Simplification has identified several areas where the current framework could be streamlined, including rationalisation of capital and buffer requirements, with a clearer structure and potential consolidation of overlapping layers; greater proportionality for smaller and less complex institutions; simplification of reporting obligations and stress-testing processes; enhanced harmonisation of macroprudential tools to reduce cross-border inconsistencies; and consideration of converting certain directive-based provisions into directly applicable regulations to limit national divergences.
Importantly, the ECB has emphasised that simplification should not weaken resilience. Instead, the objective is to make the framework more coherent, more transparent, and more predictable, thereby reducing unnecessary compliance costs and supervisory uncertainty.
Prudential Requirements Under Review: A Strategic Recalibration?
One of the most sensitive aspects of the debate concerns the potential recalibration of prudential requirements.
While aggregate capital levels across the banking sector remain solid, the interaction between Pillar 1 minimum requirements, Pillar 2 requirements and guidance, combined buffer requirements, macroprudential measures, and resolution-related loss-absorbing capacity requirements has created a complex and, in some cases, difficult-to-interpret capital stack.
The discussion is not about deregulation. Rather, it centres on whether the current structure creates duplications or excessive conservatism; unnecessarily limits lending capacity; or generates competitive disadvantages compared to other jurisdictions.
The consultation and the ECB recommendations together may pave the way for a more streamlined capital framework, potentially improving clarity around supervisory expectations and enhancing the usability of capital buffers in times of stress.
Integration, Fragmentation and Supervisory Convergence
Competitiveness is also closely linked to integration. Despite the Banking Union, significant differences persist across Member States in supervisory practices and expectations, national options and discretions, macroprudential measures, and insolvency and resolution frameworks.
These divergences can create additional operational and capital costs for cross-border groups and discourage consolidation within the Single Market.
A simplification and competitiveness agenda could therefore accelerate efforts toward stronger supervisory convergence under the SSM, further harmonisation of prudential rules, reduction of national gold-plating, and clearer cross-border mobility of capital and liquidity within banking groups.
In this sense, prudential reform is inseparable from the broader objective of completing the Banking Union and strengthening Europe’s financial autonomy.
Implications for Banks and Financial Operators
For financial institutions, the evolving agenda presents both opportunities and challenges.
Firstly, simplification could reduce compliance burdens and improve internal capital planning. Greater clarity in capital requirements would enhance strategic decision-making and investor communication.
Secondly, proportionality measures may particularly benefit smaller and mid-sized banks, provided that simplification does not introduce new supervisory complexities.
Thirdly, competitive dynamics could intensify. A more efficient prudential framework may facilitate cross-border expansion and consolidation, reshaping market structures.
And fourthly, transition risks must be managed carefully. Any recalibration of prudential rules will require adjustments to governance frameworks, capital planning models, stress testing assumptions, and disclosure strategies.
Balancing Stability and Growth
The central policy question remains how to strike the right balance between safeguarding financial stability, maintaining market confidence, and enabling banks to compete globally and support investment.
Europe’s challenge is to avoid a false dichotomy between prudence and competitiveness. A well-designed regulatory framework can strengthen both.
If the simplification process leads to greater coherence, reduced fragmentation, and enhanced predictability without eroding capital strength, it could significantly reinforce the EU banking sector’s global position.
Looking Ahead
The 2026 consultation and the ECB’s simplification proposals mark the beginning of a potentially significant recalibration of the EU banking framework.
Legislative discussions, technical assessments, and political negotiations will determine how far simplification will go and whether adjustments to prudential requirements will materialise.
For banks and financial stakeholders, the coming months will be decisive. Engaging early in the policy debate, assessing internal exposure to possible changes, and aligning strategic planning with emerging regulatory trends will be essential.
The competitiveness of Europe’s banking sector is no longer a secondary consideration. It has become a strategic priority.
How We Can Help
At SEC Newgate, we support financial institutions in navigating the evolving EU regulatory frameworks and understanding their strategic implications.
From analysing prudential reforms and competitiveness initiatives to supporting engagement with EU institutions and supervisory authorities, we help organisations anticipate change, shape policy discussions, and position themselves effectively in an increasingly competitive financial landscape.
If you would like to discuss how the simplification and competitiveness agenda may affect your business, we would be pleased to connect.