European Banking Federation urges regulatory overhaul to sustain lending capacity and global competitiveness

Europe’s banking sector is facing a pivotal moment. Without swift regulatory reform, European banks risk losing ground to global competitors, undermining their ability to finance the real economy and support long-term growth. This warning, delivered by the European Banking Federation (EBF), comes amid growing concern that the continent’s regulatory framework, though designed to ensure stability, may now be constraining competitiveness in an increasingly globalised financial system.

According to the EBF, European banks are operating under a heavier regulatory burden than many of their international peers, particularly in the United States and parts of Asia. While strong supervision has helped preserve financial stability since the global financial crisis, the cumulative impact of complex capital, liquidity, and resolution rules is now weighing on banks’ capacity to lend, innovate, and compete internationally.

At the heart of the issue lies a delicate balance between resilience and growth. European banks are among the safest in the world, with robust capital buffers and conservative risk profiles. Yet this strength comes at a cost. Higher compliance expenses and restrictive prudential requirements limit balance-sheet flexibility, making it harder for banks to finance major investments in infrastructure, digital transformation, and the green transition.

The EBF argues that this imbalance risks producing unintended consequences. As European banks retreat from certain activities due to regulatory pressure, non-European institutions and non-bank financial players are increasingly stepping in. This shift could lead to a fragmentation of financial markets and reduce Europe’s strategic autonomy in key areas such as project finance, capital markets, and sustainable investment.

Competitiveness is not only a question of profits, the federation stresses, but of economic sovereignty. Banks play a central role in funding small and medium-sized enterprises, which form the backbone of the European economy. If European lenders are constrained while foreign competitors operate under more flexible regimes, the cost and availability of credit for businesses could deteriorate, weakening growth prospects across the region.

The EBF is calling for a targeted regulatory overhaul rather than a rollback of safeguards. Its message to policymakers is clear: regulation must remain risk-based, proportionate, and aligned with international standards. In particular, the federation advocates for a more consistent implementation of global banking rules, avoiding gold-plating that places European banks at a structural disadvantage.

Digitalisation and sustainability further complicate the picture. Banks are expected to invest heavily in new technologies, cybersecurity, and climate-risk management, all while meeting stringent regulatory expectations. Without adequate returns on capital, the capacity to fund these investments may be compromised, slowing innovation and leaving Europe behind in the global financial race.

The debate over banking competitiveness also intersects with broader efforts to deepen Europe’s capital markets. A more integrated and efficient financial system could reduce reliance on bank lending alone, but progress has been uneven. Until alternative funding channels are fully developed, banks will remain the primary source of finance for the European economy, amplifying the importance of a supportive regulatory environment.

As policymakers weigh the next steps, the EBF’s warning underscores a growing sense of urgency. The challenge is not to choose between stability and competitiveness, but to reconcile the two. Failure to do so could see Europe’s banking sector gradually lose relevance on the global stage, with far-reaching implications for growth, investment, and economic resilience.

For Europe, the stakes are high. Ensuring that banks can compete globally while continuing to serve households and businesses at home may prove decisive for the continent’s economic future.