EBA calls for the completion of the Single Market and simplification of rules to increase the competitiveness of banks in the EU

The European Banking Authority has asked the European Commission to finalize the Single Market for financial services and a simplification of the regulatory framework, stating that these are key conditions for increasing the competitiveness of the banking sector in the EU, without undermining the resilience of the system.

In short

EBA states that the completion of the Single Market for financial services is an essential driver of European banking competitiveness.

The Authority supports the simplification of rules but insists that the EU must remain committed to Basel III standards, avoid fragmentation of the regulatory framework, and maintain a fair level of competition within the Union.

The total assets of banks in the EU/EEA reached 29 trillion euros in June 2025, up 3.7% from the level in June 2024, amid an increase of approximately 635 billion euros in loans and advances.

EBA warns of geopolitical and macro-financial risks, exposures to non-bank financial institutions, pressures on profitability, and digital risks, including cyber risks and those related to dependence on third-party providers. The Authority proposes a reduction of approximately 50% in the number of data required in harmonized reporting at the EU level and a 25% reduction in total reporting costs for banks.

The European Banking Authority published its response on April 17 to the consultation initiated by the European Commission regarding the competitiveness of the EU banking sector and placed the completion of the Single Market for financial services at the center of its message. In the accompanying press release, EBA states that these conclusions aim to contribute to the Commission's future report on European banking competitiveness.

The institution emphasizes that European banks remain resilient after the reforms introduced following the financial crisis, but shows that the sector operates in an increasingly volatile and uncertain environment. EBA identifies geopolitical risks, exposures to non-bank financial institutions, digital transformation, and the complexity and efficiency of the regulatory framework as the main challenges.

In its document, EBA states that simplification can enhance competitiveness only if it is targeted and compatible with four principles. These are maintaining resilience and credibility through commitment to Basel III standards, the ability of banks to fully benefit from the Single Market, deepening the Single Market and the Banking Union, and maintaining fair competitive conditions at the EU level, with proportional adjustments that do not fragment the rules.

EBA also presents an overview of the size of the sector. The total assets of banks in the EU/EEA rose to 29 trillion euros in June 2025, up 3.7% from the level in June 2024. The growth was mainly supported by an increase of approximately 635 billion euros in loans and advances and a growth of 484 billion euros in debt securities. By mid-2025, the largest holdings of banks were in loans and advances, 18.2 trillion euros, and in debt securities, 4.3 trillion euros.

The document shows that banks continue to be an essential source of funding for the economy, but the pace of lending varies between segments. Loans to households increased by 2.9% in one year, reaching nearly 7.2 trillion euros, mainly supported by mortgage loans, which reached 4.6 trillion euros. Consumer credit grew faster, by 5.8% year-on-year, although the advance in the first half of 2025 slowed down. Meanwhile, loans to companies increased by 1.8%, reaching 6.4 trillion euros, which EBA describes as a more moderate growth than in the case of households.

The Authority notes that certain sectors have attracted more funding, partly due to public policy priorities and geopolitical developments. The largest growth, both relatively and absolutely, was recorded in the energy and related utilities sector, where lending increased by over 10%, or 33 billion euros compared to the previous year. The information and technology sector recorded a growth of 5%, or 11 billion euros. According to responses collected by EBA in its risk assessment questionnaire, more than half of banks expect an increase in loan demand from the security and defense, energy and utilities sectors, while approximately 40% anticipate higher demand from the technology and telecommunications sector.

At the same time, EBA states that the fragmentation of the European banking market continues to affect cross-border access to products and services. In its response, the authority provides examples such as legal difficulties related to mortgage enforcement in cross-border cases and the lack of a pan-European payment solution that works across the entire territory of the EU/EEA, under conditions where the only operational solutions on a large scale remain card schemes based in the US.

EBA also emphasizes the importance of diversity in business models within the European banking sector, ranging from cross-border universal banks to cooperative, savings, digital, or specialized banks. According to the authority, this diversity supports competition, resilience, and funding for the real economy. In the EU-wide stress test in 2025, 64 banks from 17 member states and EEA countries, representing 75% of the sector's assets, recorded combined losses of 547 billion euros in the adverse scenario, but the aggregate CET1 ratio remained above 12%, and all participating banks remained above their total minimum capital requirements under SREP.

Regarding risks, EBA lists four main categories. The first is geopolitical and macro-financial, including geopolitical fragmentation, trade disruptions, and market volatility. The second relates to asset quality and sector vulnerabilities, particularly in commercial real estate and certain segments of the SME portfolio. The third is related to the sustainability of profitability, in a context where interest margins may be pressured by declining rates and rising funding costs. The fourth category is transition risks, including ICT and operational resilience risks, climate and ESG risks, and those related to demographic changes.

Regarding external exposures, EBA shows that exposures to non-EU counterparties reached 4.6 trillion euros, an increase of 4.8% compared to June 2023. The growth was mainly attributed to exposures to the US, up 14%, and to the Cayman Islands, up 64%. The document also notes the increasingly strong interconnections between banks and non-bank financial institutions, which increase risks to the system due to opacity and idiosyncratic risks in this sector.

On profitability, EBA states that the return on equity of EU banks remained high at 10.7%, although it decreased by approximately 20 basis points compared to the previous year. At the same time, most banks do not expect an increase in return on equity in the next 6-12 months.

On digitalization, the document shows that the transformation is already profound. Over 80% of banks in the EU use cloud computing, big data analytics, and biometrics, over 60% use digital or mobile wallets, and the vast majority, over 90%, have implemented AI technologies, including GenAI. EBA states that banks intend to double their investments in GenAI during the period 2025-2027, but warns that additional risks are also emerging, including those related to the explainability of AI decisions, cybersecurity, and dependence on third-party technology providers, many of whom are outside the EU.

The Authority also draws attention to competition from non-bank actors, including FinTech and, to a more limited extent, BigTech. EBA states that the entry of these actors stimulates innovation and efficiency but also creates level playing field issues, as FinTechs are generally supervised on an activity basis, while banks are subject to prudential requirements applied at the entity and group level.

Regarding competition from non-EU financial institutions, EBA notes that subsidiaries of banking groups from third countries represented, at the end of 2024, 9.8% of the total assets of the European banking sector, 8% of loans, 6% of debt securities, and 29% of derivatives. In certain segments, their role is even more pronounced. For example, the market share in some banking service revenues was 65.09% in commodities, 48.24% in fiduciary transactions, 30% in central administrative services for collective investments, 29.37% in corporate finance, 23.70% in custody, and 18.52% in foreign exchange.

A significant part of EBA's response is dedicated to simplifying the regulatory framework and the reporting burden. The Authority states that, after years of harmonization, a shift in focus towards supervisory convergence and a review of the existing stock of rules is possible. In the extensive document, EBA argues that provisions established by directly applicable regulations favor convergence more than those established by directives, as they limit divergent implementations or the phenomenon of gold-plating at the national level.

On reporting, EBA states that it is preparing a review to better align reporting requirements with supervisory needs, to integrate data requirements for stress tests and benchmarking into regular reporting, and to reduce the number of datapoints in harmonized reporting at the EU level by approximately 50%, despite the inclusion of new requirements related to IFRS 18, ESG, and FRTB. The Authority also states that it aims to reduce total reporting costs by 25%, develop a public repository at the EU level for data requests, and introduce common practices for ad-hoc requests, thus avoiding overlaps and duplications. The proposed changes are expected to take effect from September 2027.

The document also shows that EBA is exploring new avenues for streamlining the relationship between capital requirements, macroprudential buffers, MDA, TLAC, and MREL, as well as regarding the balance between the responsibilities of home state authorities and those of host state authorities in the context of the Single Market and the Banking Union. The Authority states that large cross-border banking groups bring benefits to the EU economy through a more efficient allocation of capital and liquidity and through the ability to absorb asymmetric shocks, but it says that any steps towards broader group-level management must be carefully evaluated from the perspective of financial stability, supervision, and resolution.

In its response, EBA states that it will continue to work together with the European Commission to support a competitive, resilient, and stable banking sector.

The response published by EBA comes within the framework of the consultation initiated by the European Commission regarding the competitiveness of the banking sector and how banks in the EU can contribute to a more attractive European economy for investors and citizens. The Authority responded to 43 of the 95 questions included in the consultation.

EBA's communication explicitly relies on its report from October 2025 on the efficiency of the regulatory and supervisory framework, which made 21 recommendations for simplifying European banking regulation. At the same time, the institution seeks to position the debate on competitiveness not in terms of deregulation, but in terms of deeper integration of the Single Market, coherent simplification, and supervisory convergence. https://2eu.brussels/ro/stiri/eba-cere-finalizarea-pietei-unice-si-simplificarea-regulilor-pentru-a-creste-competitivitatea-bancilor-din-ue