Donnery urges banking integration to cut regulatory fragmentation
European Central Bank Supervisory Board member Sharon Donnery stated that integrating the banking market is the most effective way to reduce regulatory complexity. In a contribution for Eurofi, she called for replacing directives with regulations and completing the banking union architecture.
Three pillars for a single market
Sharon Donnery outlined three core priorities to overcome market fragmentation, noting that national barriers leave 80 percent of bank loan portfolios confined to domestic markets and cross-border deposits at just 2 percent.
First, she called for shifting from national directives to directly applicable European regulations to unify rules on governance and licensing.
Second, the banking union must operate as a single jurisdiction by lifting ring-fencing and enabling cross-border capital and liquidity waivers, backed by a European deposit insurance scheme and liquidity in resolution.
Third, authorities should establish an integrated reporting framework where banks submit data once across prudential, resolution and statistical bodies.
Simpler rules without lower standards
The push for simplification coincides with heightened geopolitical, cyber and operational risks.
Donnery emphasized that simplification does not mean deregulation: “The bar stays where it is: simpler requirements, not lower requirements.”
ECB Banking Supervision is streamlining its own processes through delegated decisions, targeted inspections and clearer guidance.
Simultaneously, banks must simplify internal structures, rationalize internal models and improve data quality to eliminate operational waste.
Bold vision, stubborn capitals
Donnery rightly frames complexity as a symptom of national fragmentation.
However, establishing a European deposit insurance scheme remains politically blocked by member states guarding national safety nets.
Without political courage in capitals, these supervisory proposals will remain unfulfilled.