The future of the EU financial sector competitiveness

The competitiveness of the financial sector in the EU has become a strategic factor in closing the productivity gap that separates the European Union from other advanced economies. Although European regulation has succeeded in ensuring stability and consumer protection, the European financial system continues to show structural limitations that reduce its capacity to mobilise capital toward the real economy, boost innovation, or finance the digital and green transitions.

In this context, the report Embedding Financial Competitiveness as a Regulatory Objective to Boost Europe's Productivity, prepared by Deloitte and the Centre for European Policy Studies (CEPS), analyses how to integrate competitiveness as a regulatory objective in the EU to boost productivity, economic growth, and the continent’s strategic autonomy. The study is based on a clear premise: stability and competitiveness are not opposing objectives, but complementary conditions for an efficient and resilient financial system.

Financial competitiveness: a strategic issue for Europe

The debate over the future of European competitiveness has intensified in the wake of the report presented by Mario Draghi in 2024, which raises concerns that the EU may fail to realise its full economic potential unless it adopts structural reforms. A key question raised is whether the current prudential framework—particularly in light of the upcoming implementation of Basel III—is compatible with the need for a strong and internationally competitive banking system.

This diagnosis has been endorsed by various European governments and economic authorities. Countries such as France, Germany and Italy have urged to strengthen the financial competitiveness as a European priority. This is further supported by the warning launched in 2025 by the largest central banks in the euro area, which called for a review of regulatory complexity to prevent excessive regulation from limiting the productivity and efficiency of the financial system.

The European Commission has responded to these pressures by bringing forward to 2026 the publication of its comprehensive report on the EU banking sector, initially foreseen for 2028. The rationale is clear: the European financial system must not only be stable but also serve as an engine of growth and productivity for the real economy.

Gaps holding back financial competitiveness in the EU

Despite having one of the world’s strongest regulatory frameworks and a well-capitalised banking system, Europe suffers from structural weaknesses that limit its competitiveness vis-à-vis other major economies. 

Why is it necessary to evolve the European regulatory framework

Over the past decade, the EU has strengthened financial stability through a robust regulatory framework. However, the report raises the concern that without also incentivising competitiveness, the system risks falling behind in efficiency and innovation.

The analysis reveals that the current regulatory framework prioritises prudence and consumer protection but fails to incorporate incentives for efficiency and competitiveness. The consequence is clear: a financial system that is safer, but less dynamic, less innovative and with a reduced capacity to channel capital to strategic sectors.

The challenge lies not in deregulation, but in evolving toward a model that incorporates financial competitiveness as a complementary objective to stability. Several other countries have already done so. The United Kingdom, Singapore, India and Chile have integrated explicit market development and competitiveness objectives into their regulatory mandates, without sacrificing stability.

Embedding competitiveness as a regulatory objective: a roadmap for Europe

The report argues that financial competitiveness should be introduced as a secondary objective in the mandates of the European authorities responsible for the regulation and supervision of the financial system (ECB, EBA, ESMA and EIOPA). This change would allow to assess the competitive impact of each regulation and ensure that regulatory decisions do not limit the sector’s efficiency nor its capacity to support economic growth.

Integrating competitiveness into regulation does not imply relaxing prudential requirements nor reducing safeguards for financial consumers but rather complementing the soundness of the system with efficiency and financing capacity. To this end, the report proposes to move forward on three priority lines of action:

• Simplifying and harmonising the regulatory framework, reducing accumulated regulatory complexity and preventing administrative costs from limiting the efficiency of the financial system.
• Eliminating barriers to cross-border financing and advancing the integration of the European financial market by accelerating the Capital Markets Union.
• Incorporating competitiveness into financial supervision through efficiency and innovation indicators that allow to assess the economic impact of regulations and the modernisation of their implementation.

Furthermore, the report underlines the need to strengthen the financial system’s capacity to channel resources toward strategic projects linked to the digital and green transitions; sectors considered essential for Europe's economic future.

A framework for measuring financial competitiveness

For financial competitiveness to truly become a regulatory objective, a framework to measure its evolution in an objective and comparable way is needed. To this end, the report proposes a methodology based upon 28 indicators, designed to assess the performance of the European financial system vis-à-vis other advanced economies such as the United States, the United Kingdom or Canada.

These indicators are grouped into four key dimensions:

• Financing of the real economy, which measures the financial system’s capacity to mobilise capital toward companies and productive projects.
• Profitability and efficiency, which assesses operational productivity and financial sustainability. 
• Resilience, which maintains stability as an essential requirement.
• Digitalisation and market participation, which analyses the level of technological advancement and international competitiveness.

This approach allows for data-driven regulatory decisions and ensures systematic monitoring of the impact of the reforms. 

From measurement to action: strategic priorities for Europe

The report emphasises that the challenge no longer lies solely on identifying existing gaps, but rather on activating structural reforms that allow to move toward a more competitive European financial system. To this end, it outlines four priority lines of action:

1. Mobilising capital toward growth by channelling private savings into productive investment and strengthening the European venture capital market. 
2. Increasing the efficiency of the banking sector by promoting market integration and digital transformation. 
3. Deepening capital markets to reduce reliance on bank credit and promoting the Capital Markets Union. 
4. Driving the digital transformation of the financial sector through common and interoperable infrastructures that enable operations at a European scale.

Competitiveness and stability: a necessary balance for the EU's financial future

Advancing the competitiveness of the financial sector in the EU must be approached from a strategic perspective that reinforces the balance between stability, efficiency, and financing capacity. Stability will remain a priority of the European financial system, but without competitiveness it will be impossible to finance growth, support innovation nor sustain the continent's strategic autonomy.

Europe has a solid foundation to take this step: advanced regulation, skilled human capital, and robust institutions. What it needs now is to embed competitiveness as a structural driver to transform its financial system into a true engine of productivity and economic development.