European banks are intensifying their calls for regulators to dismantle barriers that hinder cross-border banking services within the European Union, warning that these restrictions are leaving them at a disadvantage compared to their larger U.S. rivals.
In a report published by the Association for Financial Markets in Europe (AFME), top lenders criticized regulators for locking away hundreds of billions of euros in capital and liquidity behind national barriers, delaying merger approvals, and failing to harmonize EU-wide rules.
Fragmented System vs. U.S. Model
“In theory, a bank should be able to collect deposits in Germany and lend them in Italy, much like how deposits in Kansas can support loans in California. In practice, national restrictions make this impossible,” noted a senior executive at a major European bank.
Adam Farkas, AFME’s chief executive, said the current fragmented approach is undermining profitability for banks operating across the banking union. He stressed that easing these restrictions would be “transformational in terms of economic efficiency” and essential for boosting financial stability and growth across the EU.
Rising Pressure Amid Global Competition
The renewed lobbying effort comes as U.S. and U.K. regulators adopt more bank-friendly approaches under political pressure to cut red tape. European banks fear being left behind if the EU does not act with similar urgency.
Efforts to complete the EU’s banking union have stalled for years over political disputes, particularly on a pan-European deposit insurance scheme. However, AFME argued that significant improvements could still be made without it, pointing to large sums of trapped resources — an estimated €225bn in capital and €250bn in liquidity.
Mergers and Red Tape
Cross-border mergers have also been heavily constrained. The AFME report highlighted that mergers and acquisitions between EU banks now take an average of 285 days to complete — far longer than the 219 days in the U.S., 173 days in the U.K., or 85 days in Switzerland.
Although there have been signs of renewed activity, such as France’s BPCE making a €6.4bn bid for Portugal’s Novo Banco earlier this year, political resistance often derails deals. For example, Italy’s UniCredit faced opposition over its investment in Germany’s Commerzbank.
Despite a small rise in Eurozone bank mergers last year, the overall number remains close to its lowest in three decades. The AFME warned that once Eurozone banks grow beyond €451bn in total assets, they face negative synergies, as administrative costs rise faster than economies of scale. This makes it harder for EU lenders to match the size and profitability of their U.S. counterparts.
Regulatory Burdens
The group also criticized the EU’s tougher requirements on MREL — the minimum amount of debt banks must issue to absorb losses in a crisis — which are stricter than those in the U.S. and U.K.
To strengthen efficiency and competitiveness, AFME urged authorities to:
- Introduce waivers to release trapped capital and liquidity.
- Simplify national macroprudential buffers.
- Streamline merger approvals across borders.
As one senior banker put it: “If you can’t move funds across borders, what is the point of expanding cross-border?”
