European banks are being held back by over €1 trillion in idle capital due to fragmented regulation, CEO of the European Banking Federation (EBF) has warned, urging EU policymakers to shift from rigidity to pragmatism to avoid falling behind global competitors.
Speaking at the Annual General Meeting of the Association of Cyprus Banks in Nicosia on 12 June, EBF CEO Wim Mijs described the current financial landscape as a “Tale of Two Trillions.” On one side, he said, the EU needs to mobilise around €1 trillion annually to meet its green, digital, defence, and industrial goals. On the other, a nearly equal amount of capital remains locked in the system, constrained by regulatory inconsistencies across member states.
“This rigidity stifles lending. It holds back investment. And it hampers banks’ ability to serve households, SMEs, and innovators” Mijs said. He pointed to a 60% rise in capital add-ons between 2021 and 2024, calling the resulting patchwork “a hidden brake on Europe’s growth.”
Citing recent reports by Mario Draghi and European Commission President Ursula von der Leyen, Mijs warned that Europe’s ambitions risk collapse if its banking sector remains constrained while others — notably in the US and UK — operate under more flexible rules.
“Robustness without proportionality is not resilience — it is rigidity,” he said, adding that excessive capital requirements have already raised CET1 buffers by 67%, tying up €273 billion that could otherwise support up to €4.1 trillion in additional lending.
Mijs welcomed the European Commission’s move to reduce regulatory burden by 25%, but warned that “good intentions must be matched by execution.” He said efforts to simplify financial rules — especially around ESG and sustainable finance — must move faster to provide clarity and reduce compliance overload.
On digital innovation, Mijs expressed concern that the Financial Data Access (FiDA) proposal, part of the EU’s open finance strategy, could expose European institutions to unfair competition. He also noted that the proposed digital euro, while strategic, could cost banks up to €18 billion over four years, according to an EBF-commissioned study by PwC.
“Strategy must go hand in hand with economic logic,” he said.
Mijs also called for greater accountability from tech platforms and telecom providers in tackling online fraud, and urged regulators to exempt banks from overlapping cybersecurity rules under the new Cyber Resilience Act (CRA).
On the establishment of the EU’s new Anti-Money Laundering Authority (AMLA), Mijs proposed a formal “Boardroom Dialogue” between regulators and senior banking compliance leaders to enhance trust and collaboration.
In closing, Mijs urged policymakers to act decisively.
“Europe does not need more regulation. It does not need less regulation. It needs better regulation,” he said. The CEO of the European Banking Federation emphasized that what Europe needs now is unity instead of fragmentation, clarity rather than complexity, and bold execution in place of endless debate. This, he suggested, is the path to transform resilience into competitiveness and ambition into real opportunity.
(Source: CNA)
