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European bank competitiveness: Enabling banks to play a greater role financing European growth (European Banking Federation)

ReportEuropean Banking FederationJanuary 202632 pages48 min readOriginal source
Key number
1.4 trillion €
Additional annual EU investment needs p.7
Largest segment
65%
Bank share of EU non-financial debt financing p.9
What changed
+12%
EU G-SIBs estimated RWA change from full Basel III output floor p.22

Summary

  • Europe requires an estimated additional annual investment of approximately €1.4 trillion, equivalent to around 7% of GDP, to finance its growth, digital, energy, defence, and transition goals.p.5
  • Banks represent the primary debt source in Europe, providing approximately 65% of financing to the non-financial sector.p.9
  • To fund 20% of Europe's additional annual private investment needs under current regulatory constraints, European banks would require €150 billion in additional CET1 capital.p.14
  • Securitisation markets remain underdeveloped in the EU, with data centre debt securitisation reaching $0.8 billion between 2018 and 2025 compared to $63.6 billion in the US.p.25
  • Full implementation of the Basel III output floor by 2030 is estimated to increase EU G-SIBs' Risk-Weighted Assets (RWA) by approximately 12%.p.22

Key insights

  1. Europe's additional annual investment demand has increased to €1.4 trillion, surpassing the €800 billion estimate in the 2024 Draghi report.p.7
  2. Regulatory constraints have driven European banks toward lower-risk, shorter-duration balance sheet assets like residential mortgages over long-term productive investments.p.12
  3. Increasing capital requirements absorbed over 90% of retained earnings across a sample of 15 European banks between 2021 and 2024.p.16
  4. The EU bank capital stack consists of 7 buffer layers resulting in up to 86 distinct capital requirements across member states, compared to 3 layers in the US.p.18
  5. Capping the Other Systemically Important Institution (O-SII) buffer at 1% for non-G-SIBs could release approximately €50 billion of CET1 capital.p.21
  6. Removing the Systemic Risk Buffer (SyRB) could free €19 to €29 billion of capital and enable between €120 and €230 billion of additional lending.p.22
  7. Incomplete Banking Union cross-border waivers keep more than €225 billion of capital and €250 billion of liquidity trapped in national subsidiaries.p.28

Topics and entities

EuropeBankingInfrastructure investmentPrivate debt and venture debtPrivate marketsProject financeRegulationSME finance and lendingEuropean Banking AuthorityEuropean Banking FederationEuropean Central BankEuropean Investment BankFederal ReserveFinancial Conduct AuthorityOliver WymanPrudential Regulation Authority

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