By Laura Contemori – ROME (Econostream) – The European Commission is preparing a package of banking sector reforms aimed at improving the efficiency and competitiveness of the EU banking market and strengthening banks’ capacity to finance the EU economy and strategic priorities, according to a draft document seen by Econostream on Tuesday.
The Commission aims to prepare the banking package by the first quarter of 2027.
“Banks are resilient and profitable, but the EU banking market remains fragmented and has become overly complex in certain areas,” the Commission said in the draft. “This hinders competitiveness and requires households and businesses to pay more for credit than they should.”
The Commission sees a stronger and more integrated banking sector as necessary to support growth, innovation and EU strategic priorities, including defense and the green and digital transitions.
It also said closer complementarity between EU banking and capital markets would help EU banks become more competitive domestically and internationally and reduce reliance on foreign international banks for critical financial services.
The planned reforms would focus on three main areas: fostering market integration with appropriate safeguards, implementing international standards while taking EU specificities into account, and simplifying microprudential, macroprudential and resolution requirements considered unnecessarily complex.
On market integration, the Commission plans to propose measures to improve the group-wide allocation of capital and liquidity within the Single Market.
Group-wide supervisors should have the power to ensure that capital and liquidity requirements are met at parent-entity level in cross-border banking groups, according to the draft.
That power should also trigger a legal obligation for the parent to move resources to subsidiaries, while taking into account the diversity, resilience and level of integration of banking groups, the draft said.
The Commission also plans to propose the same regulatory treatment of intragroup exposures at domestic and EU levels, and said it would continue using its enforcement toolkit where EU law is breached, notably in mergers and acquisitions.
The draft also envisages changes to the deposit insurance framework to better align responsibilities and financing for crisis management and deposit insurance within the existing Banking Union structures.
The Commission said the proposal should ensure efficient crisis management and deposit insurance at parent and subsidiary level and provide safeguards against failures of cross-border banks creating distortions in national markets or liabilities for deposit guarantee schemes and budgets.
Other planned measures include changes to improve the predictability of group resolution strategies and support a more integrated allocation of funds within cross-border groups, including in times of stress.
On international standards, the Commission said implementation should take account of the specific features of the EU banking sector while preserving a level playing field with peers in other jurisdictions.
The Commission plans to evaluate the impact of the output floor and its transitional arrangements on unrated corporates and mortgage lending, and to propose measures balancing resilience with broader financing of the economy.
It also plans to revise the prudential treatment of banks’ investments in software assets and investigate the effectiveness of current remuneration rules and their impact on the EU banking sector.
On simplification, the Commission plans measures to increase the transparency and predictability of Pillar 2 requirements and guidance.
It also plans to revise the framework for minimum requirements for own funds and eligible liabilities, bringing it closer to international standards and introducing a simpler, more automatic and predictable calibration.
The draft also calls for revision of the macroprudential framework to create a simpler toolbox and greater convergence and consistency in the application of macroprudential tools across the EU.
The Commission said it was considering reducing the number of buffers and improving their design and calibration, including by establishing one releasable buffer covering risks linked to the business cycle and other structural risks.
The draft also envisages stronger coordination mechanisms between microprudential, macroprudential and resolution authorities, as well as further work to simplify reporting and disclosure requirements.
The Commission said improving competitiveness through simplification and more cross-border activity in a more integrated banking market could not be achieved with minimal changes.