European integration and financial stability for growth

Frank Elderson, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board, delivered a keynote speech at the conference “Financing Europe: a new era of strategic investment”.

He highlighted that 85 years ago, Spinelli and Rossi authored the Ventotene manifesto, diagnosing fragmentation, division, and nationalism as barriers to peace and prosperity in Europe. Today, Europe faces challenges including weak growth, energy dependence, geopolitical tensions, and climate crises, which require addressing root causes rather than symptoms.

Elderson argued that fragmentation impedes monetary policy effectiveness, banking market efficiency, and competitiveness. He advocates for more Europe through advancing the savings and investments union, deepening the Single Market, and enhancing integration to unlock Europe’s full potential.

He emphasized the importance of a resilient banking sector that supports steady, through-the-cycle support for the real economy. Recent improvements in European banks’ capitalization, liquidity, governance, and operational resilience have strengthened their role as stability anchors during crises such as the pandemic and energy crisis.

However, Europe’s banking market remains largely national, with only 20% of bank lending crossing borders and less than 2% of deposits held cross-border. This fragmentation hampers risk diversification, economies of scale, and financing for large projects, especially in areas like defense, energy transition, and digital infrastructure.

To address this, Elderson calls for completing the Single Market, treating the banking union as a single jurisdiction, and harmonizing rules to facilitate cross-border banking. Key steps include finalizing a European Deposit Insurance Scheme, establishing a framework for liquidity in resolution, and progressing capital markets integration to boost equity financing.

He also highlighted the importance of maintaining a diverse banking system, supporting different business models, and applying proportional regulation, especially for small and non-complex institutions, to foster a resilient and competitive ecosystem.

Further, simplification of supervisory frameworks and reporting requirements is essential. The ECB’s ongoing initiatives aim to streamline processes, reduce administrative burdens, and improve supervisory effectiveness, exemplified by faster decision-making for simple capital and securitization cases.

In conclusion, Elderson urged Europe to act decisively to strengthen strategic autonomy, remove barriers, and implement tangible reforms on the savings and investments union, Deposit Insurance Scheme, and Single Market. He emphasized the importance of revitalizing growth and making Europe an attractive hub for innovation and opportunity, quoting Spinelli: “The time has come to act decisively and without delay”.

Thank you for your attention.