By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Frank Elderson said Wednesday that Europe’s banks were being held back mainly by the lack of a genuinely unified banking market, rather than by prudential rules.
In an interview with the ECB’s Supervision Newsletter, Elderson, who is also vice chair of the ECB’s Supervisory Board, said supervision had evolved over the past five years as risks to banks had become more varied and interconnected.
“The real constraint to competitiveness lies elsewhere: Europe still does not have a truly integrated banking market.”
Banks still granted about 80% of loans to households and firms in their home countries, less than 2% of deposits were held in another country and cross-border merger activity had fallen sharply from pre-crisis levels, Elderson said.
The International Monetary Fund had estimated that internal Single Market barriers were equivalent on average to a tariff of 110% for services, he said.
“To overcome these challenges and deepen the Single Market, the euro area should be regarded as a single jurisdiction for the purposes of financial regulation.”
Elderson said the ECB’s Governing Council wanted synchronized progress on the main elements of banking union, including steps toward a European deposit insurance scheme and a clear implementation timetable.
Capital and liquidity should also be able to move freely within cross-border banking groups in the Eurozone, he said.
Elderson said the ECB was reducing unnecessary complexity in supervision while preserving bank resilience.
In the first quarter of 2026, 80% of simple capital-related decisions were approved within one week on average, compared with previous timelines that could stretch over months, he said.
A separate fast-track procedure for simple securitizations had reduced approval times this year from three months to less than ten working days, he said.
The ECB would also reduce and reorganize its body of supervisory guides, Elderson said.
The ECB wanted banks to understand that the guides did not create legal obligations and served instead as a basis for supervisory discussion, he said.
On private credit, Elderson said the ECB had been monitoring banks’ exposures for several years as part of its work on counterparty risk and links between banks and non-banks.
Banks’ exposures to private credit and private equity rose 16% between 2023 and 2024, he said.
Recent strains in parts of the private credit market had made it more important for banks to test valuations, liquidity assumptions and possible contagion channels, Elderson said.
Elderson also warned that Anthropic’s Claude Mythos Preview represented a major cybersecurity development with implications for banks’ operational resilience.
“It is a game-changer in cybersecurity.”
The tool could autonomously identify and exploit vulnerabilities at far greater speed and scale than existing systems, combine minor weaknesses into serious attacks and reverse-engineer software patches into exploitable vulnerabilities much faster than before, Elderson said.
Eurozone banks currently had no access to Mythos, which had been made available only to a limited number of organizations in the United States, he said.
That did not justify inaction, Elderson said. Banks needed to intensify vulnerability detection, treat even minor weaknesses as urgent and update operational resilience plans for a greater probability of severe disruptions, he said.
