Europe Must Revise Banking Rules to Avoid Economic Setback, Federation Warns

London, 27 January 2026 – Europe faces the prospect of falling further behind other regions unless the European Union undertakes a thorough overhaul of banking regulations, the European Banking Federation (EBF) has cautioned. In a letter addressed to European Commission officials, including President Ursula von der Leyen, the federation described the current regulatory environment as “neither satisfactory nor sustainable.”

“The regulatory and supervisory landscape has grown increasingly complex and fragmented,” Slawomir Krupa, EBF President and CEO of French lender Société Générale, wrote in the 19 January letter reviewed by Reuters. “Banks, already constrained by high capital requirements, operate under the constant threat of further increases.”

Krupa pointed to EBF data spanning 2021 to 2024, showing that 15 major European banks had to hold more than €100 billion ($119 billion) in additional capital due to discretionary supervisory measures. These requirements absorbed 90% of net generated capital, effectively tying up resources that could otherwise support lending. According to the EBF, this resulted in a potential €1.5 trillion in lost lending capacity, significantly curbing banks’ ability to finance economic activity.

Europe’s persistently modest economic growth has long been a concern for both policymakers and businesses. Efforts to integrate the region’s fragmented banking sectors have struggled to gain traction.

A European Commission spokesperson affirmed that simplification of rules remains a “central priority,” noting that initiatives are underway to reduce complexity and foster a more integrated single market. The spokesperson added that reform is a shared responsibility across the Commission, European Parliament, national governments, and banking supervisors. Findings from an upcoming report on the competitiveness of the regional banking sector are expected to guide targeted measures to strengthen banks’ ability to lend.

Meanwhile, international developments are raising the stakes. U.S. President Donald Trump has pushed for regulatory reductions, potentially enhancing Wall Street’s lending capacity, while the UK has begun easing certain rules. Krupa warned that Europe risks a “competitive disadvantage” if regulatory reform does not keep pace.

Despite these challenges, European banks are posting record profits, with share prices at levels not seen since the 2008 financial crisis, buoyed by wider lending margins and a favourable economic backdrop. The European Central Bank has proposed simplifying bank regulation but has resisted measures that might reduce overall capital requirements, arguing that doing so would primarily benefit shareholders rather than lending activity.

The EBF urged further steps, including eliminating capital duplication, removing the systemic risk buffer, and aligning trading rules more closely with U.S. standards. Without decisive reform, Krupa warned, Europe’s banks—and by extension its broader economy—could face long-term competitive disadvantages.

(Exchange rate used: $1 = €0.8413)