The European Commission is preparing a draft report aimed at dismantling regulatory obstacles that prevent banks from moving capital freely across EU member states, according to sources familiar with the matter. The initiative is designed to sharpen the competitiveness of European lenders against their larger and more profitable US counterparts.
Closing the competitiveness gap with US banks
European banks have long operated at a disadvantage compared to US firms, which benefit from a single, large domestic market with uniform rules. The fragmented nature of the EU’s banking market — with 27 different national regulators and varying insolvency laws — has made it costly and complex for lenders to deploy capital where it is most needed. The European Commission’s draft report, which has been circulated among EU officials, proposes measures to streamline these cross-border capital flows, potentially allowing banks to treat capital held in different member states as a single pool for regulatory purposes.
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Key provisions of the draft report
While the full text has not been made public, the draft is understood to target several specific friction points. These include the current requirement for banks to maintain separate capital buffers in each country where they operate, and the differing interpretations of risk-weighting rules by national supervisors. The report is also expected to propose a more harmonized approach to deposit guarantee schemes and bank resolution frameworks, which would give lenders more confidence to move funds across borders. According to a European Commission communication on the banking union, these steps are seen as essential to completing the Banking Union and the broader Capital Markets Union.
Political and industry reactions
The proposal has drawn cautious support from banking industry groups, who argue that reducing regulatory fragmentation could lower compliance costs and free up capital for lending to businesses and households. However, some member states, particularly those with large domestic banking sectors, have expressed concerns about losing national control over financial stability. A senior EU diplomat told Reuters that negotiations on the final text are expected to be “intense,” as the plan touches on sensitive issues of national sovereignty over financial regulation. The European Commission has not set a firm date for the report’s publication, but it is expected to be presented in the coming months as part of a broader package of measures to boost the EU’s economic competitiveness.
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Frequently Asked Questions
Why is the European Commission proposing to remove barriers to cross-border capital flows?
The move is intended to boost the performance of EU banks compared to their US rivals by allowing capital to move more freely across member states, creating a more integrated and efficient banking market.
What specific barriers are being targeted in the draft report?
The report is expected to address regulatory and supervisory obstacles that currently prevent banks from easily transferring capital and liquidity between subsidiaries in different EU countries.
How does this initiative relate to the EU’s Capital Markets Union?
This draft report is part of a broader effort to deepen the Capital Markets Union, which aims to reduce fragmentation in financial markets and increase the bloc’s global financial competitiveness.
When is the draft report expected to be published?
The exact publication date has not been confirmed, but the report is currently in the drafting phase within the European Commission.
