The European Commission’s plan to strengthen bank liquidity, ease cross-border mergers and fund the sustainability transition

July 19, 2026

Fifteen years ago, European banks routinely outranked their American rivals in size. Today the picture has reversed: EU lenders are smaller and increasingly outmatched by global competitors. It's against this backdrop that the European Commission unveiled a report aimed at strengthening the competitiveness of the bloc's banking sector — a document that, while short on legislative substance for now, signals where Brussels wants to take European finance next.

The report is a roadmap, not yet a law

The Commission has been careful to frame this as a starting point rather than a finished proposal. Maria Luís Albuquerque, the EU's Commissioner for Financial Services, described the ambition as building a clearer path toward a more integrated, efficient and competitive banking sector. Simplifying and streamlining rules matters, she noted, but it won't be enough on its own — banks also need the right conditions to expand, consolidate and compete internationally, which means clearing away obstacles within the single market and finishing the long-delayed Banking Union.

For now, the document mainly maps out the strengths and weaknesses of Europe's banking system, with the intention of opening a discussion among member states. Concrete legislative proposals are expected to follow starting in the first quarter of 2027. The underlying goal is straightforward: align the banking sector with a European market that is becoming more financially integrated in other respects, but where banking itself has lagged behind.

€230 billion in bank liquidity is trapped across EU borders

One of the report's central themes is the difficulty banks face in moving liquidity freely across borders within their own corporate structures. Under current rules, banking groups must meet prudential requirements separately at both the parent-company and subsidiary level — a safeguard that, in practice, leaves an estimated €230 billion effectively locked in place rather than deployed where it's needed most.

The issue is a sensitive one, touching on the balance of power between a bank's home country and the countries where its foreign subsidiaries operate — often referred to in EU jargon as the "home" and "host" relationship. Loosening these constraints could make European banking groups considerably more efficient, but it also raises questions for host countries wary of ceding oversight over locally significant institutions.

Banks still hold too much of their own country's government debt

The Commission's analysis also flags a related concern: banks' portfolios sometimes carry a heavy concentration of government bonds from their own home country. This isn't a new worry — it resurfaced prominently during the eurozone debt crisis, when the tight link between struggling banks and struggling sovereigns amplified financial instability. Germany was among the first to push for mechanisms to break that "doom loop," and the theme appears set to resurface as part of the broader package, alongside a fresh proposal on common deposit insurance and the perennial question of easing — rather than blocking — cross-border bank mergers.

A common EU deposit insurance scheme would share risk between savers across countries

Beyond size and efficiency, the report also revives a proposal with a more explicitly solidarity-driven dimension: a common EU deposit insurance scheme. Today, if a bank fails, savers are protected by national funds of varying strength — meaning a depositor's safety net can depend as much on which country they bank in as on the health of their bank. A shared, EU-wide backstop would pool that risk across the bloc, so that a shock in one country's banking system doesn't leave its citizens more exposed than savers elsewhere. It's a modest but telling illustration of how deeper financial integration in Europe is, at its core, also a question of mutual responsibility between member states — the same logic of shared risk and shared benefit that underpins the EU's broader social and economic project.

Stronger banks mean more capital for Europe's green and social transition

There's also a less-discussed link between this report and Europe's sustainability agenda. The continent's climate and energy transition — retrofitting buildings, scaling renewable energy, financing the shift for small and mid-sized manufacturers — requires enormous amounts of long-term capital, much of which has to come through the banking system. Banks that are fragmented, undercapitalised relative to global peers, or unable to move liquidity efficiently across their own subsidiaries are, by extension, less able to underwrite the kind of patient, cross-border financing that green and social investment often needs.

Unlocking the estimated €230 billion currently trapped inside banking groups' internal structures isn't just a competitiveness statistic — it's capital that could, in principle, be redirected toward lending in the real economy, including toward the SMEs, cooperatives and social enterprises that make up much of Europe's civil economy. A banking sector better equipped to operate across borders is also one better equipped to fund the transition consistently, rather than leaving it dependent on whichever national banking system happens to have spare capacity at a given moment.

Europe's financial stability and solidarity

Taken together, the report points toward a European banking sector that Brussels hopes can eventually operate more like a single market than a patchwork of national systems — one where financial solidity and solidarity reinforce rather than compete with one another. Whether that vision survives contact with individual member states — many of which have historically resisted losing control over "their" banks — will become clearer once actual legislation lands in 2027. For now, the message from Brussels is clear: a more resilient, better-connected banking sector isn't only about competing with Wall Street. It's also about making sure the capital needed for Europe's social and ecological transition — and the protection owed to every European saver — doesn't stop at a national border.

CPM