The European Commission’s Report on Banking Competitiveness: Charting a course for regulatory reform

EU RegCORE Client Alert | Banking Union 

QuickTake

On 17 July 2026, the European Commission published its Communication and Report on the “Competitiveness of the Banking Sector and the Single Market in Banking” (COM(2026) 615 final and its more technical Staff Working Document (SWD(2026) 615 final)) and various supporting materials, delivering on the commitment made in the March 2025 Savings and Investments Union (SIU) Strategy. Banks play a vital role in the EU economy: they provide 75% of corporate debt financing and act as key intermediaries between savers and companies in capital markets. The Report serves as a diagnostic roadmap for sweeping legislative changes to the EU banking rulebook expected to be announced in Q1 2027 and marks arguably the most significant banking policy intervention since the completion of the Basel III legislative package.

For EU financial institutions, this signals a profound shift: from post-2008 risk-mitigation to maximising banks’ capacity to finance growth, innovation and Europe’s transition goals. Competitiveness now joins financial stability and consumer protection as an explicit, co-equal regulatory objective.

The Report’s central diagnosis is straightforward: European banks are safe and well-capitalised (with an average starting Common Equity Tier 1 (CET1) ratio of 15.8% and Liquidity Coverage Ratio (LCR)/Net Stable Funding Ratio (NSFR) at 163%/127% respectively as of Q4 2025) and have acted as shock absorbers rather than amplifiers of economic stress during the Covid-19 pandemic, the Ukraine-related energy shock and the 2023 US/Swiss banking turmoil. At the same time, they remain insufficiently competitive internationally because the Single Market in banking is still fragmented along national lines and the regulatory framework has become more complex than resilience alone requires.

Compared with the public consultation proposals, the final Communication goes further on two key issues: it commits to removing the Pillar 2 leverage ratio add-on (not merely flagging it for consideration) and explicitly identifies the 2015 European Deposit Insurance Scheme (EDIS) proposal as the one to be replaced. Both indicate heightened ambition between consultation and publication.

Bottom line: The Report is less a deregulatory turn than a signal that Banking Union completion is increasingly framed as a competitiveness measure. Its more consequential proposals — particularly on capital and liquidity fungibility — cannot be achieved through simplification alone; they require a redesigned ECB/NCA supervisory architecture, a resolution framework capable of underwriting cross-border loss absorption and a deposit insurance architecture that can credibly back a pan-European balance sheet. The gap between diagnosis (July 2026) and legislative text (Q1 2027) is the window in which the specific architecture of reform will be shaped.

This PwC Legal EU RegCORE Client Alert should be read in conjunction with further excellent publications from our PwC Risk & Regulatory colleagues notably from the EBA/SSM Office.