EU Banking Competitiveness Communication: Key takeaways

On 17 July 2026, the European Commission published its Communication on the Competitiveness of the Banking Sector and the Single Market in Banking. It forms part of the Commission's broader competitiveness agenda, with a legislative banking package expected in the first quarter of 2027.

The Commission's assessment: EU banks have become resilient, well-capitalised and profitable over the past 15 years, acting as shock absorbers rather than amplifiers of economic stress during the Covid-19 pandemic, the Ukraine-related energy shock, and the 2023 US/Swiss banking turmoil. At the same time, the sector remains highly fragmented along national borders and parts of the regulatory framework are unduly complex. The Communication sets out measures to address these challenges, built around three objectives.

1. Fostering integration with appropriate safeguards

Cross-border corporate lending in the euro area still represents only around 16% of total corporate lending. This is partly because, unlike in other jurisdictions, EU banking groups must meet capital and liquidity requirements at both consolidated and subsidiary level. According to the Commission, these requirements create a de facto barrier to cross-border mergers. Removing constraints on liquidity held in cross-border subsidiaries could release around EUR 230 billion of high-quality liquid assets. 

The Commission will propose measures to let cross-border groups allocate capital and liquidity more efficiently, apply the same regulatory treatment to intragroup exposures at domestic and EU level, and use its enforcement toolkit against Member States that intervene in bank mergers without justification. These changes are intended to facilitate the movement of capital and liquidity across borders within banking groups. To balance that, the Commission also wants stronger safeguards for depositors, so that problems in one country cannot spread to others: a new proposal will replace the 2015 EDIS proposal to simplify deposit insurance at central and national level, address remaining liquidity vulnerabilities of national deposit guarantee schemes, and improve the predictability of group resolution strategies.

2. Implementing international standards taking into account EU specificities

The Commission confirms its commitment to Basel standards, but wants their implementation to better reflect EU specificities, including that the EU applies these standards across its full, diverse banking sector of more than 4,500 banks. It will clarify the output floor and transitional arrangements for unrated corporates and mortgage lending, and review the treatment of specialised lending, software investments and remuneration for material risk-takers.

3. Simplifying the microprudential, macroprudential and resolution aspects of the regulatory framework

The Commission intends to remove Pillar 2 capital requirements related to the leverage ratio, bring MREL closer to the international TLAC standard by eliminating unnecessary discrepancies, simplify the macroprudential toolbox (fewer buffers, a harmonised O-SII framework), and reduce reporting burden – currently estimated at  EUR 11.2 billion a year for EU banks – through a targeted 50% cut in reporting data points. 

Beyond those technical aspects, the Commission also sets out broader ambitions. These include reducing the complexity of Level 2 and Level 3 measures (the detailed standards and guidelines underpinning the core legislation) and, perhaps more notably, promoting a change in supervisory culture towards a more materiality-based and proportionate approach.

The Commission is also exploring ways to strengthen the competitiveness of the banking sector, including by giving the EBA's mandate a clearer competitiveness dimension. What such a mandate would mean in practice remains open to interpretation, and early discussions suggest that stakeholders have markedly different expectations as to its scope and implications. This is likely to become an important point of debate as the legislative proposals take shape.

Next steps

The Commission describes this Communication as the start of a significant, encompassing and forward-looking reform, with legislative measures to follow in the Q1 2027 banking package. It notes the ambition of the co-legislators, referring to the European Council conclusions of December 2025 and March 2026 and the European Parliament's annual report on the Banking Union.

For banks, three things are worth watching now.

• Capital and liquidity: if intragroup requirements are eased and the Pillar 2 leverage add-on is removed, cross-border groups could genuinely free up capital and liquidity, in line with the Commission's own EUR 230 billion estimate. It is worth mapping where this could apply to your group.
• Cross-border consolidation: the Commission's stated intent to act against unjustified national interference in bank mergers, combined with the new deposit insurance and resolution proposals, could make cross-border consolidation more achievable than in the past.
• Reporting and supervision: with reporting simplification, automation and a possible reshaped EBA mandate on the table, it is worth tracking which obligations could realistically be reduced once the Q1 2027 package is published.

Compared with the proposals discussed during the Commission's public consultation, the final Communication goes further on two issues that are particularly relevant for banks: it commits to removing the Pillar 2 leverage ratio add-on, rather than merely flagging the issue for further consideration, and it explicitly identifies the 2015 EDIS proposal as the proposal to be replaced. Both indicate that the Commission's ambition on these issues increased between consultation and publication. 

It is also worth noting that parts of the Communication remain deliberately conceptual. This is likely to leave significant room for the Commission's incoming leadership at DG FISMA to shape the detailed legislative proposals expected in Q1 2027.

We will continue to monitor this file and report back once the Commission tables its legislative proposals.