Building the future of European banking through resilience and integration

In his keynote speech at the tenth annual European Systemic Risk Board (ESRB) conference, Boris Vujčić, Vice-President of the European Central Bank (ECB), highlighted the importance of resilience, simplification, and financial integration for the future of European banking.

He noted that the ESRB was established 15 years ago in response to the global financial crisis, with a mandate to oversee systemic risks beyond individual institutions. The crisis demonstrated the severe costs of financial instability, with estimates of median fiscal costs around 7% of GDP for advanced economies, alongside broader economic losses.

Vujčić discussed the evolving regulatory framework, noting that while reforms have increased bank capital ratios and profitability, some industry stakeholders see regulations as overly cautious, potentially hindering competitiveness. He emphasized that resilient banks, with strong balance sheets, are a strategic advantage for Europe.

The Vice-President advocated for simplifying EU banking rules, citing recent ECB recommendations to merge capital buffers, streamline leverage ratios, and align resolution frameworks for smaller banks. He also highlighted ongoing supervisory efforts to reduce complexity in regulation and guidance documents.

Regarding competitiveness, Vujčić explained that it is multifaceted, including profitability, efficiency, innovation, and investment capacity. He pointed out that since 2009, euro area bank capital ratios have doubled, and profitability has recovered, narrowing the valuation gap with US banks. Current lending dynamics are more influenced by demand and macroeconomic conditions than capital constraints.

The speech emphasized that the resilience of banks enhances their ability to meet credit demand during crises and supports overall stability. The most effective way to boost competitiveness, however, is through financial integration. A genuine Single Market and banking union would reduce fragmentation, increase cross-border lending, and enable economies of scale.

Vujčić highlighted the need for completing the banking union, establishing a European deposit insurance scheme, and advancing the Capital Markets Union. Addressing legal and regulatory fragmentation, such as taxation and insolvency laws, is crucial for developing deep and stable capital markets in Europe.

He concluded by reaffirming that resilience, simplification, and integration are interconnected. Progress in these areas will strengthen Europe’s financial system, helping it withstand shocks and support sustainable growth, as history shows that rapid crises can undo years of economic gains.