Europe wants stronger growth, deeper capital markets and greater strategic autonomy. Yet one obstacle remains largely unresolved: banks still cannot operate across the EU as though it were a single market.
This matters because the debate around banking consolidation is not really about mergers and acquisitions. It is about competitiveness.
European policymakers are rightly focused on improving the EU’s ability to compete in an increasingly challenging global environment. Yet Europe cannot achieve its ambitions without a banking sector capable of supporting investment, innovation and growth across the continent. If Europe wants stronger investment, more integrated capital markets and greater economic resilience, it also needs banks that can operate efficiently across borders.
As AFME sets out in its response today to the European Commission’s review of banking competitiveness, achieving this will require progress on several fronts. Europe needs to simplify its regulatory and supervisory framework, remove barriers to market integration and enable banks to deploy resources more efficiently in support of the wider economy. Banking consolidation is an important part of that agenda.
The case for scale
At its heart, the debate is about whether European banks have the scale and flexibility needed to support Europe's future growth ambitions.
Scale is becoming increasingly important in modern banking. Investment in technology, digitalisation, artificial intelligence, cybersecurity and regulatory compliance requires substantial resources. Banks with greater scale can spread these costs across a larger revenue base, invest more effectively in innovation and provide a broader range of services to households and businesses. They are also often better positioned to support capital markets activity and compete with global peers operating in large, integrated domestic markets.
Just as importantly, larger and more integrated banking groups can allocate resources more efficiently across markets, helping to channel financing to where it is needed most and supporting growth across the wider economy.
A fragmented market
Yet Europe's banking market remains fragmented. Cross-border mergers remain relatively rare and banks continue to operate primarily within national boundaries. Significant barriers still stand in the way of a genuinely integrated European banking market.
The paradox is that Europe has successfully created a single market for many goods and services but continues to struggle to achieve the same degree of integration in banking. The result is a banking sector that often operates below the scale of the European economy it is meant to serve.
The consequences are visible. Cross-border transactions often face lengthy approval processes, overlapping reviews and considerable execution uncertainty. According to AFME analysis, completing a banking merger in the Banking Union currently takes around 285 days on average, compared with 173 days in the UK and 144 days in the United States.
These obstacles matter because they discourage the very integration Europe says it wants to encourage.
Recent discussions around the European Commission's banking competitiveness agenda rightly recognises the link between market integration, simplification and competitiveness. Europe should resist the temptation to treat these as separate debates. A more integrated banking market, a simpler regulatory framework and a more competitive banking sector are mutually reinforcing objectives.
A more coherent framework for cross-border banking activity would help create stronger institutions capable of supporting investment across Europe while maintaining robust prudential standards and financial stability safeguards.
This should form part of a broader effort to reduce unnecessary complexity and duplication across Europe’s regulatory and supervisory framework. The objective should not be deregulation, but regulation and supervision that are clearer, more proportionate and better aligned with Europe’s competitiveness goals.
Unlocking capital and liquidity
The challenge extends beyond mergers themselves. Integration is not only about making transactions easier. It is also about ensuring banks can operate efficiently once they have expanded across borders.
Today, significant amounts of capital and liquidity remain trapped within national subsidiaries. AFME estimates that more than €225 billion of capital and €250 billion of liquidity are constrained by existing structures and rules, limiting banks' ability to allocate resources efficiently across Europe.
Without the ability to move capital and liquidity more freely across banking groups, Europe will continue to operate at a disadvantage compared with jurisdictions whose banks can deploy resources seamlessly across large domestic markets. Improving the flow of capital and liquidity is therefore not simply a technical regulatory issue. It is a competitiveness imperative.
Of course, consolidation is not an end in itself. Every transaction must make commercial sense and continue to satisfy appropriate regulatory and competition requirements. Nor is bank size alone a guarantee of economic success.
But Europe should not allow unnecessary complexity, fragmentation or national barriers to prevent banks from operating at the scale of the European economy. If these barriers persist, Europe risks leaving its banking sector at a structural disadvantage. The question is a simple one: can Europe realistically expect its banks to compete globally if they cannot operate freely across Europe itself?
The next step for European banking
Europe’s efforts to improve banking competitiveness must now move from diagnosis to delivery. Simplifying the framework, improving the allocation of capital and liquidity and creating a genuinely integrated banking market would make it easier for banks to finance growth, support innovation and compete globally.
Banking consolidation will not resolve Europe’s competitiveness challenge on its own. But if the EU wants a banking sector capable of financing its long-term ambitions, removing the barriers to operating across Europe must remain a priority.
