Maria Luís Albuquerque, the European Commissioner for Financial Services, has identified the persistent fragmentation of the European Union's banking sector as the single most significant factor holding back the continent's economic competitiveness. In a recent statement, she urged a fundamental shift in how member states and financial institutions approach cross-border banking.
Albuquerque, a former Portuguese finance minister, argued that the EU must move beyond its current patchwork of national banking systems. She described the situation as a structural weakness that prevents capital from flowing efficiently to where it is needed most, particularly for innovative companies and green investments.
“We need a change in mindset,” Albuquerque said. “The EU should be willing to take greater risks while preserving financial stability. That means completing the banking union and removing the barriers that still divide our markets.”
The Cost of Fragmentation
The commissioner’s remarks come amid broader debates in Brussels and national capitals about how to revive Europe’s competitiveness in the face of global challenges. The European Central Bank has long warned that the lack of a truly integrated banking market leaves the eurozone vulnerable to crises and limits the ability of banks to lend across borders.
Albuquerque pointed out that while the EU has made progress since the 2008 financial crisis—through the establishment of the Single Supervisory Mechanism and the Single Resolution Board—the banking union remains incomplete. The absence of a common deposit insurance scheme, for instance, continues to tie banks to their home countries and discourages cross-border mergers.
This fragmentation is particularly damaging for smaller and medium-sized enterprises (SMEs), which often struggle to access financing from banks outside their home market. It also hampers the development of a true European capital market, a goal that has been pursued for years under the Capital Markets Union initiative.
Albuquerque’s call echoes similar sentiments from industry leaders. Earlier this year, the chairman of Revolut urged Europe to end banking fragmentation and build global champions, arguing that the current system leaves European banks at a disadvantage compared to their American and Asian counterparts.
Balancing Risk and Stability
The commissioner acknowledged the tension between encouraging innovation and maintaining financial stability. She stressed that taking greater risks does not mean abandoning prudential standards. Instead, it requires a more sophisticated approach to regulation that allows for experimentation while safeguarding the system.
“We cannot afford to be overly cautious,” she said. “If we want to compete globally, we must be willing to support new business models and technologies. But that must be done in a way that does not compromise the resilience of our financial system.”
Albuquerque’s comments align with recent EU proposals for a banking overhaul aimed at ending national fragmentation and boosting investment. The European Commission has put forward legislative measures to harmonize insolvency laws, simplify cross-border bank operations, and encourage the development of pan-European financial institutions.
However, progress has been slow. National governments remain protective of their banking sectors, and political resistance to further integration persists, particularly in countries like Germany and the Netherlands, which are wary of mutualizing risks.
For Albuquerque, the stakes are clear. Without a more integrated banking market, the EU risks falling further behind the United States and China in key sectors such as technology, clean energy, and defense. She called on member states to put aside narrow national interests and work toward a common vision.
“The banking union is not just a technical project,” she said. “It is a political choice about the kind of Europe we want to build. A Europe that is fragmented will always be weaker than one that is united.”
