Unlocking Bank Capital to Support Europe’s Competitiveness – BPFI proposals for a simpler and more effective EU banking framework
Europe faces a defining competitiveness challenge. Delivering stronger growth, greater strategic autonomy, more housing, deeper capital markets, digitalisation, decarbonisation and defence investment will require capital at a scale Europe has not mobilised in decades. The Draghi report identified an annual EU investment gap of around €800 billion, while more recent analysis suggests that Europe’s wider strategic investment needs may be closer to €1.2 – €1.4tn per year when energy, digital infrastructure, defence, innovation and environmental resilience are considered together.
Banks will be central to meeting this challenge. Europe remains a largely bank-based financial system, and banks are essential to financing households, SMEs, corporates, housing, infrastructure and the transition economy. They are also critical to building deeper capital markets through origination, underwriting, securitisation, market-making, distribution and investor intermediation.
At the same time, the EU banking framework has delivered resilience as shown through numerous recent crises. European and Irish banks are well capitalised, liquid and strictly supervised. However, resilience alone is no longer sufficient. The cumulative layering of capital requirements, supervisory expectations, reporting obligations, macroprudential buffers and national discretions is constraining the ability of banks to deploy capital efficiently in support of the real economy.
BPFI’s position is clear: this is not a call for deregulation. It is a call for a simpler, more proportionate and more coherent framework that preserves financial stability while enabling capital to flow more efficiently to households, businesses and strategic EU priorities.
We recommend that the EU should:
- Streamline and simplify the regulatory framework, including the capital stack, Level 2 and Level 3 rulemaking, supervisory guidance and macroprudential buffers.
- Update the capital framework so that it better reflects underlying risk, including improved underwriting standards, borrower-based macroprudential measures, collateral, social and affordable housing lending, and technology investment.
- Embed genuine proportionality across regulation and supervision, particularly for smaller, medium-sized and lower-risk banks, and for institutions with simpler business models.
- Complete the Banking Union and remove barriers to scale, including trapped capital and liquidity within cross-border banking groups.
- Ensure a level playing field within the EU and globally, by reducing gold-plating, national divergence and international competitive disadvantages.
- Support market liquidity and capital markets intermediation, through recalibration of securitisation and investment firm rules.
- Simplify the digital and payments framework to support innovation by avoiding regulatory overlap, ensuring proportionality and safeguarding investment in digital and cyber resilience.
Ultimately, Europe needs banks with greater capacity to support growth, so the goal should be a banking framework that is safe, simple, proportionate and growth-enabling.
