Banking reform: The EU wants to free up billions to finance its economy

The European Union (EU) is preparing a banking reform intended to free up more capital to finance its economy. Brussels wants to reduce national barriers that prevent banks from easily moving their resources within the single market. The challenge is immense: filling an annual investment gap estimated at 1,400 billion euros.

Banking reform aims to put capital back into circulation

European banking reform targets a structural problem: a significant part of resources remains blocked in national subsidiaries. Despite the progress of the banking union, large groups still have to meet capital and liquidity requirements at several levels.

This organization would immobilize nearly 225 billion euros in capital and 250 billion euros in liquidity. These reserves strengthen the strength of subsidiaries, but they also limit the ability of banks to quickly move their funds to the sectors or countries that need them most.

Brussels is therefore considering greater supervision focused on the entire banking group. Parent companies would gain flexibility in distributing their resources. In exchange, they could be legally required to intervene when a subsidiary encounters difficulties.

The issue goes beyond the simple internal organization of banks. Depending on the sector, more consistent rules could create more than €2 trillion in additional credit capacity. This is not an envelope available overnight, but a financing potential made possible by a more efficient use of capital.

This margin is particularly important in Europe, where banks still provide around 65% of the financing of the real economy. Businesses, households and infrastructure projects therefore rely heavily on their ability to lend. In the United States, a larger share of financing goes directly through markets.

However, the European Union must accelerate its investments in defense, energy, artificial intelligence and industrial modernization. Its annual financing deficit would reach nearly 1,400 billion euros. Without more effective mobilization of savings and bank capital, the gap with the United States and China could widen further.

Brussels finally wants to decompartmentalize European banks

Banking reform aims to make it easier for banks to move their capital and liquidity from one European country to another. Today, the single market exists on paper, but banking groups remain largely organized around national subsidiaries.

Each state seeks to retain resources on its territory to protect its financial system in the event of a crisis. This logic reassures local authorities, but it slows down pan-European banks and reduces their ability to finance businesses where the needs are most urgent.

Brussels wants to relax these barriers without going back on the safeguards established after 2008. The ECB accepts a simplification of the rules, but for the moment refuses a general reduction in capital requirements. The objective is to better circulate capital, not to make banks less solid.

Banks are asking for simpler rules. Regulators fear disguised deregulation. States want to maintain control of their financial systems. These conflicting interests make negotiations difficult.

However, the issue goes beyond the banking sector. Europe must mobilize more savings to finance its industry, infrastructure, innovation and energy transition. It also seeks to strengthen the role of the euro against the dollar.

Above all, Brussels will have to show where the money released will go. If the reform only improves the balance sheets of the big banks, it will be contested. If it actually increases loans to businesses and strategic projects, it could reduce Europe's dependence on foreign capital and strengthen its financial sovereignty.