EBA Chair Warns Fragmented Market Undermines EU Funding Goals

The head of the European Banking Authority (EBA) has warned that fragmentation within the EU's banking market is preventing lenders from achieving the scale necessary to finance the bloc's critical strategic ambitions. EBA Chair François-Louis Michaud stated that a lack of true integration is holding back investment in defense, digitalization, and economic security.

National Barriers Hinder Scale

In an interview with Reuters on Wednesday, Michaud explained that while European banks remain highly capitalized and profitable, the single market is "not as single as it should be." He identified key obstacles that make it expensive for banks to operate across borders and achieve economies of scale.

Key barriers cited include:

• Divergent national tax laws
• Varying insolvency regimes
• Differences in consumer-protection rules

These national-level complexities prevent banks from offering standardized products across the bloc, limiting their growth and ability to compete effectively.

An 'Existential' Funding Need

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According to Michaud, the ability to finance the continent's major transformations is "existential for the future of Europe." The key areas requiring massive investment include the digital and green transitions, demographic shifts, economic security, and defense.

The current structure has led to a decline in wholesale banking by European institutions, Michaud noted. This funding gap is increasingly being filled by non-bank financial institutions, private credit firms, and competitors from outside the EU.

Call for Deeper Integration

Michaud emphasized that mergers are not the only solution, highlighting that greater cross-border lending and financial integration are equally vital. He added that the EBA aims to reduce "unnecessary red tape," allowing banks and supervisors to concentrate on the most significant risks rather than on compliance for its own sake.

Strengthening the bloc's lenders is also necessary to compete with U.S. rivals, who Michaud said have substantial capital for expansion. He suggested that with Basel banking reforms now implemented, momentum is building to simplify European rules while preserving the resilience of the financial system.