Montagner: Banking fragmentation, not complexity, is core issue

Patrick Montagner argued that banking regulation's complexity largely mirrors the sophisticated reality of the institutions supervised.

Major banks operate across numerous jurisdictions, managing diverse risks from climate change to digital assets, and processing transactions at unprecedented speeds.

The inherent diversity of the European banking sector, spanning large systemic groups and small cooperatives, also necessitates a degree of regulatory complexity to accommodate varied business models and mandates.

Montagner emphasized that proportionality, adapting supervision to bank specifics, is crucial, particularly for small and non-complex institutions (SNCIs), though it must not compromise depositor protection.

He also noted that banks themselves contribute to complexity by demanding precise rules and detailed guidance to eliminate interpretive uncertainty.

Supervisors, too, can add layers of guidance, which ECB Banking Supervision is actively reviewing to enhance conciseness and consistency.

This simplification is a shared project, requiring cultural change from both sides, focusing on material risks and legal application.

Montagner asserted that the real challenge is fragmentation, not complexity, manifesting in two forms.

First, fragmentation within the prudential framework spans multiple legislative levels, national options, and uncoordinated policy areas, creating structural incoherence and increased burdens for banks.

Second, wider structural fragmentation arises from diverse national systems, including consumer protection, insolvency, and tax regimes.

This hinders cross-border integration, making retail banking fundamentally local.

While some diversity is justified, additional national layers often create unnecessary complexity.

Addressing this requires legislative action, such as advancing the banking union and a European deposit insurance scheme, rather than solely supervisory measures.

Within its mandate, ECB Banking Supervision is implementing internal reforms, including changes to the Supervisory Review and Evaluation Process (SREP) and a "next-level supervision" project, to foster a more unified supervisory culture.