France, Italy and Spain have jointly proposed a new regulatory framework designed to reduce fragmentation in the European Union's banking sector, arguing that existing barriers continue to hinder cross-border operations and weaken the bloc's competitiveness.
The proposal, submitted to the European Commission ahead of a major review of the banking sector, calls for the creation of a voluntary cross-border regime for banking groups operating across multiple EU member states.
The initiative comes as the Commission prepares to publish a report on the competitiveness of the European banking sector on July 15, a document expected to shape future reforms and legislative proposals.
Concerns Over Fragmented Banking Market
Despite more than a decade of progress under the EU's Banking Union framework, the three countries argue that Europe's banking market remains divided along national lines.
According to the proposal, regulatory and operational barriers continue to limit the ability of banks to move capital and liquidity efficiently across borders, restricting their capacity to serve businesses and consumers throughout the bloc.
The document states that market fragmentation increases compliance costs, reduces efficiency and prevents European lenders from achieving the scale needed to compete globally.
Billions in Liquidity Remain Locked
The proposal highlights estimates from the European Central Bank showing that the lack of cross-border liquidity waivers prevents the transfer of approximately €230 billion in high-quality liquid assets within the Banking Union.
France, Italy and Spain argue that these restrictions limit banks' flexibility and create unnecessary regulatory burdens.
"This weakens competitiveness, raises compliance costs, limits access to products and services, and undermines the scale and efficiency gains that European banks need to support strategic EU priorities," the document states.
New Voluntary Regime Proposed
To address these challenges, the three countries have proposed a voluntary framework that would be available to banking groups with significant cross-border activities.
Under the plan, participating banks would benefit from greater regulatory consistency and improved management of capital and liquidity requirements across member states.
The proposal is intended to complement broader efforts to simplify EU financial regulations while maintaining financial stability and supervisory oversight.
Officials believe the framework could improve predictability for banks, lower compliance costs and encourage deeper integration of the European financial system.
Banking Reform Moves Higher on EU Agenda
The proposal aligns with broader efforts led by Ursula von der Leyen to strengthen the European Union's economic competitiveness.
Since beginning her second term, von der Leyen has made competitiveness a central objective of EU policy, with financial market integration viewed as a key component of that strategy.
The European Commission is expected to present a broader legislative proposal on banking sector reform in 2027, following consultations with member states, regulators and industry stakeholders.
Focus on Supporting Growth
Supporters of the initiative argue that a more integrated banking market would improve access to financing for businesses, increase efficiency and help mobilise capital for strategic investments across the EU.
As policymakers seek to strengthen Europe's economic resilience and global competitiveness, reducing barriers within the banking sector is increasingly viewed as a priority.
The forthcoming Commission report in July is expected to provide further insight into how Brussels plans to address longstanding challenges in the European banking market and advance deeper financial integration across the bloc.
