EU aims to boost bank competitiveness by easing cross-border mergers

The European Commission is pushing to enhance the competitiveness of European Union banks against their larger U.S. counterparts by proposing measures to streamline banking mergers and eliminate obstacles to cross-border operations within the bloc.

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This leads to an outcome where many banking groups in the EU are large relative to the size of their home economy, but not relative to the size of the EU or the banking union economy or international competitors.

A recent EU executive report identifies internal barriers as a significant impediment, preventing EU banks from expanding and achieving the economies of scale that have benefited U.S. lenders in a more integrated domestic market. The report notes that banking groups in the EU, while large relative to their home economies, lack the necessary scale when compared to the EU's overall economy or international competitors. Unjustified national interventions in cross-border bank mergers further hinder banks from reaching a critical size at the EU level.

This criticism comes in the wake of Germany's rejection of an offer from Italy's UniCredit to acquire Commerzbank. Despite Germany citing price as the official reason, the government also signaled its preference for Commerzbank to remain under German ownership due to its importance to German industry. A senior EU official commented that such cross-border mergers are beneficial if approved by supervisors and competition authorities, emphasizing that scale, not just regulations, is key to competitiveness.

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Unjustified national interventions in cross-border bank mergers were preventing banks from acquiring scale at the EU level to reach a critical size, it said.

In response, the EU executive plans to introduce a range of proposals in the first quarter of 2027. These will include stricter enforcement against member states that interfere in proposed mergers and measures to allow cross-border banking groups to meet capital and liquidity requirements at the parent level, potentially freeing up €230 billion in liquid assets. The Commission will also present a new plan for deposit insurance measures in the bloc, replacing a decade-old proposal for a European deposit insurance scheme.

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It is a mistake from our point of view. If it's okay by the supervisor and the competition authority, cross-border mergers are good things.

The banking industry's reaction to the report has been mixed. The French banking lobby FBF acknowledged positive directions but called for concrete measures on regulatory coordination and country-specific rules. Christian Sewing, CEO of Deutsche Bank and president of the Association of German Banks, urged swift action, including adjustments to capital requirement limits.

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The main driver of competitiveness is not the rulebook ... it's the absence of scale.