European Commission plans banking merger reforms to boost EU lenders' scale

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EU banking merger reforms

Highlights

European Commission will propose banking reforms in Q1 2027 targeting unjustified national intervention in cross-border bank mergers, aiming to boost EU banks' global competitiveness.
New measures could allow cross-border banking groups to meet more capital and liquidity requirements at parent level, potentially freeing 230 billion euros ($263.1 billion) in liquid assets.
Industry responds with calls for clearer regulatory coordination and faster action on capital rules, following Germany's rejection of UniCredit's Commerzbank bid amid ongoing merger obstacles.

Proposed reforms and 2027 timeline

As reported by Reuters, a European Commission report released on Friday says internal barriers are stopping EU banks from expanding across borders and limiting their ability to achieve the scale needed to compete internationally. The report argues that many banking groups are large relative to their domestic economies but remain small compared with the wider EU market, the banking union and major global competitors.

The Commission says unjustified national intervention in cross-border bank mergers is one of the main obstacles. It plans to propose a package of measures in the first quarter of 2027, including action against member states that breach EU rules restricting when governments can intervene in proposed mergers.

Other proposals would let cross-border banking groups meet more capital and liquidity requirements at the parent level instead of facing extra demands at subsidiary level. The report says removing those constraints could release 230 billion euros, or $263.1 billion, in liquid assets. The Commission also intends to replace its decade-old proposal for a European deposit insurance scheme with a new plan focused on deposit insurance measures across the bloc.

Pressure from failed deals and industry reaction

The Commission's criticism follows Germany's rejection in June of an offer from Italy's UniCredit to take over Commerzbank. UniCredit has been pursuing Commerzbank since September 2024, but the resistance to the deal underscores the difficulty of executing cross-border banking mergers in Europe.

Germany officially cites the price offered by UniCredit, but the government also makes clear that Commerzbank is an important lender to German companies and should remain under German ownership. A senior EU official says that view is mistaken, adding that if supervisors and competition authorities approve a deal, cross-border mergers are beneficial and can strengthen European banks against U.S. competitors across multiple business lines in Europe.

The banking industry gives the report a mixed reception. French banking lobby FBF says the document contains several positive directions but calls for concrete steps on regulatory coordination and limits on country-specific rules, while Deutsche Bank CEO and Association of German Banks President Christian Sewing urges swift action on capital requirements, trade finance relief, software investment treatment and financial stability buffers.

In our earlier coverage of London markets, we noted that the FTSE 100 was broadly flat as rising oil prices lifted energy shares while bank stocks weakened. The piece also highlighted how Middle East tensions and the U.K.’s political transition—alongside Andy Burnham’s expected move toward becoming prime minister—were influencing the wider market backdrop.

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