The European Commission is preparing a legislative package for the first quarter of 2027 that seeks to dismantle long-standing barriers between national banking markets across the European Union. According to a draft Commission report obtained by Euronews, the reforms are designed to increase financing for businesses and strategic sectors while reducing the bloc's reliance on banks headquartered outside the EU.
The report, scheduled for official presentation on 15 July, sets the stage for what officials describe as a comprehensive overhaul of the EU banking sector. It acknowledges that the current market remains fragmented and, in some areas, overly complex. "EU banking market remains fragmented and has become overly complex in certain areas," the draft states, adding that this situation means "households and businesses paying more for credit than they should."
Investment Gap and Strategic Needs
The push for reform comes as Europe confronts a significant investment shortfall. A June study by consultancy Oliver Wyman, commissioned by the European Banking Federation, estimates that the bloc requires an additional €1.4tn in annual investment—substantially more than the €800bn identified in Mario Draghi's 2024 competitiveness report. The Commission argues that more efficient banks can better finance critical sectors, including defence, digital transformation, and the green transition.
The draft report explicitly addresses the need to reduce dependence on non-EU banks for strategic financing. It states that the "EU banking sector can help in financing the EU’s economy, including its strategic priorities, such as defence and the [digital and green] transitions."
Three Pillars of Reform
The document outlines three main objectives: completing the single market for banks, adopting international standards for the EU banking industry, and simplifying what it calls "unduly complex and burdensome aspects of the sector." Specific proposals include easing cross-border movement of capital and liquidity between member states, as well as improving mechanisms for managing bank failures.
The reforms are closely tied to ongoing efforts to integrate European capital markets. The report stresses that any banking sector overhaul must proceed in parallel with deeper capital markets union. Negotiations on capital markets reform are currently underway in Brussels, with the aim of reaching an agreement by the end of the year.
Cross-border banking within the EU remains far more limited than in the United States, despite decades of integration efforts. The Commission hopes that removing national barriers will allow banks to operate more efficiently across the twenty-seven member states, reducing costs for consumers and businesses alike.
The draft report does not specify exact legislative language but signals that the Commission will propose concrete measures in early 2027. The reforms are expected to face intense lobbying from national banking associations and some member states wary of ceding control over their financial sectors. However, the growing urgency of Europe's investment needs—particularly in defence and climate—may provide the political momentum needed to overcome resistance.
For now, the Commission is positioning the reform as a necessary step to ensure that European banks can compete globally and support the continent's strategic autonomy. As the draft puts it, a more integrated banking market is not just an economic goal but a matter of European security and resilience.
