- Europe
- News Desk
- Source: European Central Bank https://www.ecb.europa.eu//press/inter/date/2026/html/ecb.in261020~97e2e4bc38.en.html
The biggest obstacle to European banks' international competitiveness is fragmentation, not regulation, according to Frank Elderson, member of the European Central Bank's Executive Board and Vice-Chair of its Supervisory Board. Speaking in an interview with Die Presse conducted by Aloysius Widmann on 14 October 2026, Elderson said Europe still lacks a truly single banking market, which drives up costs and limits banks' ability to compete globally.
Key facts
Why does Elderson reject the deregulation argument?
- Frank Elderson, ECB Executive Board member and Vice-Chair of the Supervisory Board, gave the interview to Die Presse on 14 October 2026.
- Elderson said fragmentation is the biggest obstacle to European competitiveness and that integration, not deregulation, is the remedy.
- He called for completing the Single Market, the savings and investments union and the banking union, including a European deposit insurance scheme.
- Small and non-complex banks currently report up to 30% of the data required from large banks, and Elderson said there is room for more proportionality.
- Elderson warned that loosening Basel III standards would shift risk from regulation to supervision rather than eliminate it.
Elderson pushed back against bank complaints about the cost of regulation, recalling the 2008 financial crisis. He said those costs were enormous not only for banks but also for households, firms, taxpayers and society, and far outweighed the cost of regulation. Post-crisis reforms have made European banks more resilient, with strong capital and liquidity levels and average profitability higher than in many years, he said.
He acknowledged that regulation and supervision have become more complex, partly because banks differ greatly and face increasingly complex risks, from geopolitical tensions and cyber risk to climate, nature and artificial intelligence. But he stressed that complexity is not an end in itself and that the ECB constantly asks whether it could achieve its objectives with simpler rules. Measures have already been taken to reduce reporting obligations and speed up processes.
"Simplification is not the same as deregulation," Elderson said, adding that resilience is the foundation of sustainable growth and competitiveness. What would a truly single banking market achieve?
Elderson argued that cross-border banking in Europe remains limited, preventing banks from fully benefiting from economies of scale, diversification and more efficient allocation of capital and liquidity. This fragmentation leads to higher costs, lower efficiency and fewer opportunities to achieve the scale needed to compete internationally, affecting many sectors beyond banking.
"If fragmentation is the diagnosis, integration is the remedy – not deregulation," he said. He called for completing the Single Market, the savings and investments union and the banking union, including a European deposit insurance scheme. He described simplification and integration as two sides of the same coin and said the European Commission's banking reform package must keep both together.
Asked how much a fully integrated market would encourage cross-border lending, Elderson said local banks know their customers best and competition is already strong in countries like Austria. But a single jurisdiction with several hundred million customers would bring more competition, better products and more risk sharing, and would help fund future-oriented investments in the climate, nature, energy and demographic transitions.
He noted that differences in legal frameworks, insolvency regimes and consumer protection rules still make cross-border banking unnecessarily complex and costly. "We've built them ourselves – we can, and should, also remove them and do so urgently," he said, adding that with enormous investment challenges ahead, "we've no time to lose". Would looser Basel III implementation hurt Europe?
Elderson rejected the idea that other countries could ease the burden on their banks by implementing Basel III more loosely without harming Europe's competitiveness. Banking is a global business, capital flows across borders and risks do not stop at national borders, he said, making international standards essential.
"We want banks to compete on how efficient and innovative they are and how well they manage their risks, and not on who operates under the weakest rules," he said. The Basel standards provide a common minimum benchmark, with room for national variations where justified, targeted and evidence-based. Lowering standards does not make risks disappear, he warned, and loosening Pillar 1 requirements could simply shift the burden from regulation to supervision. How is proportionality applied?
Elderson said proportionality is not about weakening supervision but about tailoring it to banks' size, complexity and risk profile, which is already embedded in the legal framework. Small and non-complex banks, for example, report up to 30% of the data required from large banks. He said there is room to do more on proportionality and that he staunchly supports it.
Elderson's remarks come as European policymakers debate how to simplify regulation without undermining financial stability. The European Commission's banking reform package will be a key test of whether simplification and integration can advance together, a process Elderson said must be completed urgently given the investment needs facing the European economy.
Source: European Central Bank
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