4 August 2026
On 09 June 2026, the EBF published its report in relation to the overall competitiveness of the European financial market, where they noted that Europe’s investment needs are growing faster than economists predicted only two years ago.
This report (in conjunction with Oliver Wyman) notes that European banks have a role to play in promoting European competitiveness to boost investment opportunities and makes a set of recommendations based on it.
The Report builds on the Draghi report on EU competitiveness (2024) (“the Draghi report”) as an indicator of the current investment needs of Europe. It makes a number of assertions including that major geopolitical events in the intervening years have resulted in a vast shift in investment needs, and that there are shifts in issues such as energy transition, digital needs, and defence (previously included in the Draghi report although not to the extent now forecasted by EBF).
On the other hand, it also considers the need for further investment in innovation, social, and environmental matters. If left unaddressed, they consider that Europe will fail to meet its strategic objectives in respect of capital infrastructure and social and environmental policy.
According to the Report, bank lending accounts for the majority of debt available to non-financial sector borrowers in the EU. The availability of investment grade bonds, high yield bonds, leveraged loans, and private debt are significantly less.
There is also low availability of private equity in Europe which has been typically limited to large and well-established institutions. The EBF’s analysis suggests that the fragmented nature of the European public markets hinders efficient cross-border capital flows, which leads to significant challenges when sourcing project financing to meet Europe’s strategic ambitions.
Additionally, the Report argues that Europe’s Banks are restricted in their role of supporting Europe’s financing needs and developing deeper capital markets. This situation likely resulted from the regulatory response to the Global Financial Crisis and include limitations such as strict capital, liquidity, and risk management requirements.
Over time, introduction of stricter requirements has greatly impacted the ways in which Banks evaluate lending opportunities. Ultimately this has led to a decline in lending by European Banks with an EBF study of 15 European banks finding that increasing capital requirements absorbed more than 90% of retained earnings between 2021 and 2024, leaving less than 10% available to support lending.
The result is a reduction of lending capacity by approximately €1-1.5 trillion according to this report.
The Report made seven recommendations in order to improve competitiveness:
Overall, the seven recommendations aim to streamline regulatory capital and supervisory requirements to remove barriers to lending and investment opportunities across the European market.
The report finds that Europe needs to strike a better balance between financial regulation, supervision, and economic growth to improve market competitiveness. The recommendations target the fragmented nature of the EU banking sector, provides strategic solutions for promoting investment of idle household savings or capital sitting on bank balance sheets, while also acknowledging the continued need for adequate supervision and safeguarding measures.
The EBF’s Recommendations seek to strike a balance between the conservative regulatory environment which developed from the Global Financial Crisis and the need to address the declining competitiveness of the European market.
The Report illustrates a clear role for Banks in the financing of Europe’s investment needs within a broader financing continuum.
Policymakers, regulators, supervisors, and market participants are urged to avoid inaction in order to promote growth.
It is hoped that the recommendations, if implemented, would promote greater innovation and enhance infrastructure across Europe in a way which is both socially and financially rewarding to the European market.
For now, we need to monitor any domestic or European changes implemented as a result of this report.
The Financial Services Regulation team within KPMG Law LLP can assist organisations in understanding the financing, investment and funds landscape. Particularly, the team can provide up-to-date regulatory information and compliance advice.
