Elderson: EU banking supervision adapts to new risks, market fragmentation
Frank Elderson, Vice-Chair of the ECB's Supervisory Board, discussed the evolution of banking supervision and the challenges to EU bank competitiveness. He emphasized that market fragmentation, not resilience, is the primary constraint.
Fragmented markets, not resilient banks
Elderson welcomed the European Commission's ambitious reform agenda to enhance the competitiveness of EU banks, asserting that bank resilience has not hindered Europe's growth.
He argued the real constraint lies in Europe's fragmented banking market.
Evidence includes banks granting 80% of loans domestically, less than 2% of deposits held cross-border, and a sharp decline in cross-border merger activity.
The International Monetary Fund estimates internal Single Market barriers are equivalent to a 110% tariff for services.
To deepen the Single Market, Elderson stated the euro area should be regarded as a single jurisdiction for financial regulation.
The ECB's Governing Council calls for synchronised progress on Banking Union, including concrete steps towards a European deposit insurance scheme with a clear timetable, and allowing capital and liquidity to flow freely within cross-border banking groups.
Policymakers are also urged to foster deeper capital markets by advancing the savings and investments union.
Next-level supervision: Streamlining and agility
European banking supervision is evolving to be more focused, agile, and effective, adapting to diverse risks like geopolitics, cyber threats, climate, and non-bank finance.
Elderson stressed the core objective remains ensuring banks' resilience in every material aspect, including sustainable business models and strong risk management.
He stated, "The core objective will nevertheless remain the same: making sure that banks remain resilient in every material aspect.
" The "next-level supervision" project is streamlining processes, with 80% of simple capital decisions approved within one week in Q1 2026.
Simple securitisations now see approval times cut from three months to under ten days.
The initiative also develops a more proportionate approach for small institutions and an integrated reporting framework.
A call for true European integration
Elderson's interview clearly articulates the ECB's stance: banking resilience is not the problem, but market fragmentation is.
This reframes the competitiveness debate, pushing for deeper Banking Union and capital markets.
While streamlining supervision is welcome, the political will for genuine cross-border integration remains the ultimate hurdle.