EU banking strategy pushes competitiveness agenda, but UK ties remain a key gap

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EU banking strategy shifts

Highlights

European Commission's new banking strategy prioritizes EU lenders' global competitiveness and identifies internal market fragmentation as a structural weakness.
The strategy calls for a country-blind regulatory framework under uniform EU law, but ECB regulatory waivers are seen as insufficient due to persistent national influence.
Trade in financial services between the EU and UK has risen over 50% since 2016, yet the Commission's strategy omits UK relations, leaving a key gap in integration efforts.

Regulatory overhaul faces implementation test

As reported by Financial Times, the European Commission is outlining a new banking strategy that treats the global standing of EU lenders as a policy priority and identifies market fragmentation inside the bloc as a structural weakness.

The paper signals that EU banks need stronger capacity to compete with global rivals from the U.S., which currently outperform them in several business lines, especially investment banking. It also acknowledges that the bloc still lacks genuinely continental lenders, as large national banks remain constrained by rules and political interests that discourage cross-border expansion.

A central issue now is whether that diagnosis becomes enforceable law. The article argues that banks seeking to operate across borders need a country-blind regulatory framework under EU law and EU authorities alone, rather than having to comply with prudential requirements separately in each national market where they do business.

The Commission appears inclined to let the European Central Bank grant regulatory waivers for such groups, but that approach is presented as insufficient. The concern is that decision-making inside ECB supervision can still be shaped by national coalitions, making it harder to apply a truly European framework in practice.

UK relationship seen as missing element

The other major weakness identified in the strategy is its narrow view of integration within continental Europe. The article says the Commission communication does not mention the UK, even though the bloc and the UK remain deeply complementary in financial services.

That omission is notable because the EU is strong in generating savings while the UK remains dominant in managing them. The post-Brexit period appears to reinforce that interdependence, with trade in financial services across the Channel rising by more than 50% in both directions from 2016 to the end of 2024.

The article argues that legislative reform inside the EU should run in parallel with efforts to bring the two financial sectors closer together. Suggested steps include restoring supervisory equivalence, reducing regulatory barriers, facilitating staff exchanges and capital mobility, and ultimately pursuing a broader agreement on financial services trade.

Under financial services commissioner Maria Luís Albuquerque, the EU is recognising more clearly the challenges facing its banking sector. But the bloc still needs to overcome political resistance inside the union and address its relationship with the UK if it wants banking integration to deliver meaningful economic gains.

Our earlier report on UK banks’ strong first-half results explained that headline profit growth at lenders such as NatWest, Lloyds, Barclays and HSBC was being propped up by structural hedges, while competition in deposits and mortgages was squeezing margins on new lending. It also noted that intensifying rivalry was flattening net interest margin expectations and limiting the scope for further profit expansion despite still-solid earnings.

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