Europe’s banks can be well capitalised while firms still struggle to obtain suitable credit. The missing link may be a borrower’s risk, weak investment demand, or the difficulty of deploying banking resources across national markets. Identifying that link matters before treating lower capital requirements as a growth policy.
In his October 2 speech, ECB Vice-President Boris Vujčić argued that financial integration offers a stronger route to banking competitiveness than a simple reduction in capital requirements. That is a policy argument, supported by evidence he presents about profitability, lending and fragmentation. It is not a legislative change or a forecast that a particular merger will create value. Its useful test is whether a more unified market can improve credit allocation while preserving the ability to absorb shocks.
Strong ratios do not identify the next useful loan
The EBA’s September release on second-quarter supervisory data reports a Common Equity Tier 1 ratio of 16.1% for the EU/EEA banking sector. This compares qualifying capital with risk-weighted assets. It is not a measure of idle cash available to lend, and the broad supervisory sample should not be confused with a statistic for every individual euro-area bank.
A bank can have room above its regulatory requirements and still decline a loan because expected losses, pricing or uncertainty make the transaction unattractive. Conversely, an individual lender can face a constraint that a healthy sector average conceals. Aggregate strength is evidence of resilience; it cannot establish that every company has access to finance or that every bank has the same capacity to expand.
The ECB’s July bank lending survey, covering the second quarter, provides a complementary view. Banks reported moderate tightening of corporate credit standards, driven mainly by higher perceived risks and lower risk tolerance, while demand from firms rose slightly. This is reported lending behaviour for that period. Expectations collected for the third quarter are not observations of what subsequently happened.
The mechanism explains why more regulatory headroom need not produce more productive loans. A lending decision also needs a borrower with a workable project and a lender willing to bear the risk at an acceptable price. Integration could improve competition and access to expertise, but it cannot make an economically weak project viable merely by moving capital across a border.
Simpler rules and thinner protection have different effects
Vujčić distinguishes regulatory complexity from the quantity of resources available to withstand losses. Combining overlapping requirements or making reporting more consistent can reduce administrative effort without removing the protection those requirements provide. A reduction in actual loss-absorbing capacity would make a different trade-off. The same word, “simplification,” should not obscure that distinction.
For a smaller bank, predictable requirements and proportionate reporting could free staff and investment capacity for customer service. For a cross-border group, consistent treatment could reduce duplicated processes. Neither benefit requires assuming a precise increase in lending or profit. The size of the gain depends on the systems that are genuinely redundant and the cost of implementing the new framework.
The Commission’s July banking-competitiveness factsheet puts more efficient cross-border management of capital and liquidity alongside stronger integration and continued resilience. It sets the first quarter of 2027 as the intended timing for a package of measures. That timetable concerns proposals. It does not give banks new permissions today or establish the eventual legislation’s details.
Cross-border efficiency needs confidence in a crisis
The practical attraction of integration is to use a banking group’s resources where customers can use them well. Shared technology and expertise may spread fixed costs across more business, while geographically diversified earnings can reduce dependence on one local economy. These are plausible mechanisms, rather than a quantified synergy estimate for a named transaction.
There is a substantial counterargument. Host-country authorities and customers need confidence that resources will remain available when their local operation is under stress. A group-level efficiency gain can be unattractive locally if it appears to leave a subsidiary dependent on support that may not arrive. Credible crisis management and enforceable arrangements therefore matter to the economic case for greater mobility.
Deposit protection is part of that confidence. The Commission’s EDIS explanation describes a proposed common European scheme built on existing national deposit-guarantee systems. The absence of the common scheme does not mean national protection is absent. The integration debate concerns stronger shared backing against local shocks and confidence across jurisdictions, alongside safeguards for the risks being shared.
Larger groups can also inherit costly technology migrations, complex governance and concentrated exposures. Diversification across countries offers limited protection when the same shock affects them together. The quality of an integration plan matters as much as its geographical footprint; a larger organisation does not automatically allocate credit better.
A useful scorecard would track cross-border credit access, operating costs after integration, loan quality and the credibility of recovery and resolution arrangements. Evidence that banks genuinely cannot meet viable demand because capital is binding would weaken the current diagnosis and strengthen the case for a different calibration. Evidence of lower costs, wider access and preserved resilience would support the integration thesis. The October speech makes that policy choice visible; implementation and measured outcomes must establish its value.