Europe’s banks are in a much stronger position than they were right after the global financial crisis. Yet they cannot compare to major-league competitors. That is both good and bad; and that is the problem.
European banks are well capitalised, profitable and better able to withstand shocks. But when it comes to competing with the world’s biggest financial institutions, Europe has a problem: its banks are still largely national. As Eurogroup President Kyriakos Pierrakakis put it in May: “We need European champions. We don’t need national champions.”
The ECB’s latest figures show that the eurozone’s biggest banks remain in good health. In the first quarter of 2026, they had enough high-quality capital to absorb substantial losses, while their return on equity, a basic measure of how profitably they use shareholders’ money, stood at around 10 per cent. In other words: Europe’s banks are making money, and they have substantial financial buffers if things go wrong.
Not safety first anymore
Those figures are a long way from the situation Europe faced right after the 2008 financial crisis. The reforms that followed forced banks to hold more capital, strengthened supervision and laid the foundations for the Banking Union.
But the debate has now moved on. The question is no longer just about the safety of the banks, but about their ability to integrate enough to become globally competitive. The comparison with the US makes the gap clear. Banco Santander, Europe’s largest bank by market capitalisation, is around five times smaller than JPMorgan, the biggest US bank. That matters because banking is becoming an increasingly technology-intensive business. Banks need to spend heavily on digital services, artificial intelligence, cybersecurity and other technologies just to keep up with competitors. The bigger the bank, the more easily those costs can be spread across millions of customers.
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“If they miss out on the technological investments that I just mentioned, they won’t be part of the equation,” Mr Pierrakakis told the European Parliament earlier this year.
The stakes go beyond the banks themselves. Europe needs enormous amounts of private financing for defence, infrastructure, energy and digital technology. If its banks cannot operate at scale, the argument goes, European companies may have a harder time getting the money they need to grow. (Even as the business should not really rely on banks as the only source of financing.)
Why scale matters
A larger bank can also spread the cost of technology and compliance across a bigger customer base. It can diversify its lending across several countries rather than depending heavily on the fortunes of one national economy.
And there is another potential benefit: a genuinely European banking market could make it easier for money to flow to the companies and projects that need it most, rather than leaving capital trapped within national borders.
That fits into a much broader European competitiveness problem. In February, ECB President Christine Lagarde described Europe as a sleeping giant: a market of 450 million people whose potential is held back by internal fragmentation. Services account for around three-quarters of Europe’s economy, she noted, yet trade in services between EU countries remains surprisingly limited. Banking is another manifestation of the same paradox.
A single market stops at the border
The EU has a single market and, for much of the bloc, a single currency. But banks still largely operate along national lines. A German customer opening an account with a German bank is, in practice, part of a different banking market from a customer using an Italian bank. Banks can have subsidiaries in several countries, but moving money, capital and liquidity between them is not always straightforward. Different national rules and supervisory practices add further obstacles.
There has been some progress. The ECB said in May that financial integration in the euro area had improved since late 2022, particularly in debt markets and interbank lending. But equity markets remain fragmented, cross-border investment is weak and Europe is still not getting as much benefit from its enormous pool of savings as it could. True European banks of size remain absent.
The national champion problem
A clear example of why that remains difficult is playing out right now between Italy and Germany.
Italy’s UniCredit has been trying to take control of Germany’s Commerzbank since building a stake in the Frankfurt-based lender in 2024. In March 2026, UniCredit announced a formal public takeover offer for all of Commerzbank, without the German bank’s agreement. Commerzbank has opposed the bid and urged shareholders to remain independent.
As of July, UniCredit had acquired or been offered control of a substantial share of Commerzbank, but the deal still faced regulatory approval and political opposition. The ECB was, as of August, considering whether to approve the transaction. Chancellor Friedrich Merz has said the government which owsn 12 per cent of the bank) will not block the takeover outright, but has criticised UniCredit’s approach and stressed the importance of Commerzbank to Germany’s economy, including its role in financing the country’s small and medium-sized businesses. (The situation saw a potentially groundbreaking change earlier this week.)
Governments have good reasons to care about who owns their biggest banks. Large lenders employ thousands of people, provide credit to domestic businesses and can play an important role in the national economy. They have also spent decades building banking systems around national institutions.
That makes the idea of a foreign bank taking control of a national champion politically difficult.
Bigger does not equal better
Mr Pierrakakis argues that this national mindset is precisely what Europe needs to overcome.
“All of us have a tendency to be more protective about our national market, of course,” he said earlier this year.
All of us have a tendency to be more protective about our national market. — Kyriakos Pierrakakis, Eurogroup president
There is, however, a reason Europe should be cautious about the pursuit of scale. The post-2008 reforms were introduced precisely because large and interconnected banks can create enormous problems when they fail. A European banking system dominated by a handful of giant institutions could create new ‘too big to fail’ risks. And cross-border banking raises another difficult question: who pays if a large European bank gets into trouble?
The ECB now directly supervises the eurozone’s largest banks, and Europe has a common system for dealing with failing banks. But one major piece is still missing: a fully fledged European deposit insurance system.
The next phase of the Banking Union
That matters because deposit insurance is ultimately about trust. If a bank operating across several countries gets into serious trouble, national governments want to know who is responsible for protecting depositors and who will bear the cost. The same concern helps explain why countries have been reluctant to allow capital and liquidity to move completely freely between national subsidiaries.
The Commission and the ECB are now trying to tackle those barriers. The focus is to make the rules genuinely European: allowing capital and liquidity to move more freely across borders, reducing unnecessary regulatory differences and completing the parts of the Banking Union that are still missing.
The ECB has argued that cross-border banking should be as seamless as domestic banking, while rules should be simplified without weakening the safeguards introduced after the financial crisis. That leaves Europe with a difficult balancing act.
It wants banks big enough to compete with JPMorgan and other financial giants in the US and China. But it also wants to avoid recreating the risks that made giant banks so dangerous in the first place.
