The banking industry in Europe has warned that overregulation poses a threat to economic development in the region. The report has been put out by the European Banking Federation and addresses the need for the EU to make fewer regulations that hamper investment. With changes in policies slated for the next year, 2026, the banking industry wants the EU to make regulations that help the competitiveness of Europe and not work against it.
Regulatory complexity undermines Europe’s worldwide competitiveness
The regulatory environment has become a complex maze where banks in Europe are forced to operate under conflicting regulations. There are prudential, tax, and reporting regulations, among others, that banks in Europe have to comply with, and all these regulations contravene each other. This has reduced the competitiveness of Europe in relation to the fast and efficient financial systems in the United States and Asia.
Critically, this complexity frustrates the desired aims that the regulators claim they promote. Banks need to provide funding and support for green, digital, and resilience projects, yet they are constrained by bureaucracy, rather than making available the funds they possess. The European Commission could talk about simplification, and the banking industry needs action, rather than words that lack delivery.
ECB President Lagarde highlights domestic market potential
The speech given this month by Christine Lagarde in Frankfurt exemplifies why the need for regulations has become essential. She pointed out that “the old model of export-led growth, in the sense that Europe has always had, is in trouble” and that the “aggregation and development of internal markets” has become necessary. The EU also faces internal barriers that amount to the same thing as tariffs on services at 100% and goods at 65%.
What emerges from Lagarde’s insights is that, by easing their barriers against the Netherlands’ high standards, the EU members could offset the effect of US tariffs on EU trade. This proposed policy remedy could alter the EU’s path to growth. The first step in accomplishing this, however, involves burning through the red tape obstructing banks from supporting the transnational investment and growth of EU banks.
“The world will not slow down for Europe, but we can decide on our pace. Let’s make our Single Market single, and then the fate of economic growth in Europe would depend on what we decide, and no longer on others,” Lagarde said in Frankfurt. “Regulatory obstacles prevent banks in our continent from using savings for our own productive sectors, and instead, they prefer the rather accessible markets in the United States,” she added.
The banking industry demands an immediate simplification
The European Banking Federation is neither looking for deregulation. But it demands smarter regulation, which works. “Europe cannot and should not draw its economy into excessive regulatory complexity,” said the EBF’s Chief Executive Officer, Wim Mijs, “We are nearing the limits where the banking industry can operate in terms of complexity in the regulatory environment,” he added.
However, this striving for simplification has come at the worst possible time, when Europe faces pressures from tariffs imposed by the US, the rise of China, and Europe faces instability in the world. Despite the banks’ dedication to the green and digital transitions, they still struggle with frameworks that would make it difficult rather than easy for them to direct capital. There are obstacles where there need to be bridges.
The banking industry in Europe has issued a direct threat to the EU government in Brussels. The recapitalization changes in 2026 could signal the moment when the EU faces the option of whether it will succeed in the global world. The consensus on the subject is that the EU needs to listen, because, failing that, the EU funds could end up on the other side of the pond.
