In a keynote speech, Patrick Montagner, Member of the Supervisory Board of the European Central Bank, argued that Europe should preserve the post-crisis banking framework and treat competitiveness mainly as an integration problem rather than a capital stringency problem. He said recent ECB analysis does not support the claim that European Union banks are systematically burdened by higher capital requirements than comparable United States peers, and that robust supervision remains necessary because Europe relies heavily on banks to finance the economy. Montagner pointed to a stronger post-crisis banking sector, with non-performing loan ratios down from 7.5% in 2015 to 1.9% now, return on equity at 9.5% in the fourth quarter of 2025, price-to-book ratios close to 1.5, and the profitability gap with United States peers narrowed to around 2 percentage points. He said the bigger obstacle is fragmentation within the banking union, as cross-border groups still cannot move capital and liquidity as freely as within a single national jurisdiction, mergers remain constrained by national legal and governance barriers, and the European deposit insurance scheme is still absent. On supervision, he said the ECB is already pursuing simplification after the Governing Council endorsed 17 recommendations in December 2025, covering the capital stack, macroprudential buffers, stress tests, reporting, proportionality for smaller banks and broader Supervisory Review and Evaluation Process reforms, but rejected an approach that would narrow supervision to a small set of financial ratios and leave governance, risk management, operational resilience and early remediation outside scope. He set out a policy agenda of allowing freer intra-group capital and liquidity flows within the banking union, ending different treatment of cross-border intra-group transactions, converting prudential directives into regulations to reduce national divergence, and setting a clear timetable for the European deposit insurance scheme, alongside further supervisory modernisation.
European Central Bank - Banking Supervision2026-05-18
European Central Bank Banking Supervision says fragmentation not capital requirements is the main drag on EU bank competitiveness
The European Central Bank – Banking Supervision’s Patrick Montagner said Europe should preserve the post-crisis banking framework, stressing that analysis does not show systematically higher capital requirements for EU banks than for US peers and that robust supervision remains necessary given Europe’s bank-based financing model. He identified banking union fragmentation, including constraints on intra-group capital and liquidity flows, barriers to cross-border mergers and the absence of a European deposit insurance scheme, as the main obstacle to competitiveness. Montagner urged easing intra-group flows, harmonising prudential rules by converting directives into regulations, advancing European deposit insurance and continuing supervisory simplification.