François-Louis Michaud told Reuters that European banks remain highly capitalised and profitable but operate within a single market that remains fragmented by national differences in taxation, insolvency rules and consumer protection.
Those differences increase the cost of providing standardised financial products across borders and restrict the ability of banks to achieve economies of scale.
The issue has become increasingly important as European governments seek to mobilise large amounts of private capital for digitalisation, defence, infrastructure and economic security. The ability of banks to finance these priorities is closely linked to the depth and integration of Europe's financial markets.
Cross-border lending could provide part of the solution. Michaud said greater financial integration could be as important as mergers in helping European lenders expand their reach and improve efficiency.
The pressure is also being felt through competition with US banks. European officials have previously highlighted the greater scale of American financial institutions and their significantly higher technology investment relative to assets.
European banks are simultaneously facing a changing funding landscape. Wholesale banking activity has declined over time, while non-bank financial institutions, private-credit firms and external investors have taken a larger role in providing capital.
Regulators are therefore facing the challenge of improving competitiveness without weakening financial resilience. Michaud said the implementation of Basel banking reforms and changes being considered by US regulators had created momentum for simplifying European rules, while maintaining appropriate safeguards.
The debate has implications for businesses across the bloc. Larger and more integrated banks could improve access to financing for companies expanding across European markets, while deeper capital markets could provide additional funding for infrastructure and technology projects.
For investors, the issue extends beyond individual bank performance. The structure of Europe's financial system will influence the continent's capacity to mobilise capital for long-term economic transformation.
As governments pursue greater strategic autonomy, banking integration is becoming increasingly connected to questions of industrial competitiveness, technological investment and economic security.
