From proportionality to better access to data, SFL proposes reforms to ensure EU banks can better finance Europe’s future 

The competitiveness of the European banking sector ultimately resides in its capacity to finance the real economy across all phases of the economic cycle. 

In its response to the European Commission’s consultation on the competitiveness of the EU banking sector, SFL highlighted the importance of maintaining a resilient and well-capitalised banking system to fulfil this role. We identified structural fallacies in the current regulatory framework that may discourage banks from financing innovative and future-proof companies, including renewable energy projects, thereby undermining the long-term competitiveness of the European economy. 

Diversity and heterogeneity 

The diversity of the European banking sector is its greatest competitive advantage. A heterogeneous system not only guarantees financial stability by addressing risks through a variety of business models and approaches, but it also ensures that a broad range of financing needs are met. Introducing a truly proportional regulatory regime for smaller institutions would help preserve this diversity by reducing compliance costs for simpler banks serving as the backbone of local economies. At the same time, a differentiated European Deposit Insurance Scheme (EDIS), applicable only to banks participating in the Single Supervisory Mechanism (SSM), could facilitate the development of cross-border banking groups with greater capacity to finance large-scale European projects.  

Emerging risks and supervision 

Current risk management frameworks do not price the future into credit allocation decisions, leaving emerging risks (i.e. geopolitical tensions, climate-related risks, and AI-model uncertainties) largely unaddressed. Existing models remain geared towards traditional financial risks and largely rely on historical data to determine lending conditions. As a result, innovative and future-proof companies often face less favourable financing terms due to their limited track record.  

These challenges are compounded by profitability pressures, which discourage banks from taking on additional risk and further constrain financing for innovative companies. To address this issue, SFL recommends adopting a specific risk concentration regime to price harmful climate-related risk positions, among others. 

Supervisory blind spots 

Emerging risks also pose challenges at the supervisory level. The European banking sector is deeply interconnected with the wider financial system, creating supervisory blind spots between regulated entities and non-bank financial institutions (NBFIs). To address these vulnerabilities, SFL recommends adopting a total balance sheet approach within the Capital Requirements Regulation (CRR). This measure would enable supervisors to assess risks at the group-wide level and capture exposures that may otherwise remain outside of the regulatory perimeter. 

Data-sharing 

Fragmentation, regulatory complexity, and limited data-sharing among supervisors and financial institutions continue to hamper the benefits of a genuine single market. Larger institutions may possess the resources to access and process data that remain out of reach for smaller banks, placing the latter at a competitive disadvantage. Establishing a real-time data-sharing framework through the European Single Access Point (ESAP) would improve access to information, abate costs and increase the overall competitiveness of the European banking sector. 

The consultation was launched to inform the Commission’s forthcoming report on the competitiveness of the EU banking sector, which is expected to be followed by legislative proposals aimed at simplifying the banking regulatory framework. 

SFL’s full response can be found below.