Europe's banking union: analysis calls for more room for cross-border banking business

A recent analysis by the Leibniz Institute for Financial Research SAFE sheds light on the challenges that stand in the way of effective cross-border integration in the European banking sector. What changes are needed to create a fully functioning single market for banking products and services?

Europe continues to strive for a fully functioning single market for banking products and services, ten years after the introduction of the Banking Union. An analysis by the Leibniz Institute for Financial Research SAFE shows that this does not require extensive new regulations, but only adjustments to existing laws.

The report, prepared by Ignazio Angeloni, Senior Fellow at the Leibniz Institute, on behalf of the European Parliament's Committee on Economic and Monetary Affairs, emphasizes that despite a successful banking union, the goal of a true single market in banking has not yet been achieved. The focus should be on changes to the most important EU legislation on banking regulation, such as the Capital Requirements Directive, Capital Requirements Regulation, Resolution Directive, Single Resolution Mechanism Regulation and Deposit Guarantee Schemes Directive.

Restrictive legislation and need for reform in crisis management and deposit protection

The analysis shows that existing legislation, particularly in the Capital Requirements Regulation, restricts capital and liquidity requirements to national levels. As a result, the Single Supervisory Mechanism is forced to enforce national regulatory requirements for banking groups that operate in several EU countries. There is also a lack of provisions to ensure support and cohesion within groups in difficulty.

In order to overcome these hurdles, the framework for crisis management and deposit protection for cross-border banks should be designed to be "country-blind". According to Angeloni, efficient "country-neutral" business processing that allows banks to expand abroad under the supervision of the European Central Bank would be crucial.

The analysis emphasizes that compared to the US, where cross-border banks are a small minority, EU law subjects all banks to the same rules. Angeloni calls for the removal of regulatory barriers that have prevented progressive banking integration since 2014, despite an otherwise successful banking union.

The recommendations aim to enable seamless banking transactions and greater integration in the European banking sector. Angeloni sees the way clear to realize the desired single market for banking products and services if the necessary adjustments are made to existing laws.

You can download the white paper here on the homepage of the Leibniz Institute for Financial Research SAFE.