EU to Propose Banking Sector Reforms to Boost Competitiveness and Reduce Foreign Dependence

The European Union will propose new legislation to reform the banking sector, aiming to break down financial barriers within the bloc and reduce its dependence on foreign banks for critical financing needs, according to a draft European Commission report seen by Euronews.

The report, due to be presented on 15 July, lays the groundwork for broader banking sector reforms expected in 2027.

"EU banking market remains fragmented and has become overly complex in certain areas," the report says, specifying that the situation results in "households and businesses paying more for credit than they should."

Cross-border banking within the EU remains more limited than in the United States, despite decades of market integration efforts.

The reforms come as Europe faces growing investment needs. A June study by consultancy Oliver Wyman for the European Banking Federation estimated the bloc requires an additional €1.4tn in annual investment, compared with the €800bn identified in Mario Draghi's 2024 competitiveness report.

According to the draft European Commission report, if banks are in a position to be more efficient, they can also better finance critical sectors.

It addresses the importance of reducing the bloc's reliance on banks based outside the EU. It states that the "EU banking sector can help in financing the EU’s economy, including its strategic priorities, such as defence and the [digital and green] transitions."

The document mentions three main goals to make the banking sector more competitive: to complete the single market for banks, adopt international standards for the EU banking industry, and simplify some "unduly complex and burdensome aspects of the sector", the report says.

The report includes proposals to make cross-border banking operations easier, including the movement of capital and liquidity across member states and the management of bank failures.

In parallel with the reform and further integration of the banking sector, the document specifies that any reform has to go hand in hand with further integration of the European capital markets.

Negotiations on capital markets reform are ongoing in Brussels, with the bloc aiming to reach an agreement by the end of the year.