The European Union is facing internal divisions over how to handle a key proposal aimed at boosting the competitiveness of its banking sector, as political pressure mounts to prioritize certain elements of the package.
Germany has been the most vocal advocate for splitting the proposal, a stance that was initially rejected by Maria Luis Albacarqui, the EU Commissioner for Financial Services. She dismissed the idea last week, according to sources familiar with the matter. However, Valdis Dombrovskis, the Commissioner for the Economy, supports the division, suggesting that less contentious reforms, such as reducing bureaucracy, should move forward first, while more divisive issues, like the deposit guarantee system, be addressed later.
The push for a phased approach reflects broader concerns about the complexity of the package, which seeks to reform the EU’s banking system by lowering national barriers for pan-European banks, simplifying capital rules, and improving regulatory treatment for activities like trade finance. The proposal comes as European lenders fear falling behind their U.S. counterparts, which have gained an edge from recent deregulation in Washington.
Lars Klingbeil, Germany’s finance minister, proposed a two-step process during a recent meeting of EU finance ministers. He argued that regulatory simplification should take precedence, while more complex topics, such as the deposit guarantee scheme, could be discussed in parallel. This aligns with Dombrovskis’ position, creating a potential split within the body over how best to advance the legislation.
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Germany’s stance is shared by major banks in the region, which have also called for a gradual rollout. The German finance ministry told Bloomberg that the country backs measures that “directly contribute to competitiveness and investment growth.” It added that past experience shows structural issues, like those tied to the single market and banking union, are too complex to resolve all at once.
Germany has long opposed a full European deposit insurance scheme, first proposed in 2015 as part of the bloc’s banking union. While the EU eventually agreed on a common framework for restructuring and supervising banks, the deposit guarantee plan remains stalled due to fears that national schemes could be drained to bail out weaker banks in other economies.
The latest calls for revisions to the banking package follow significant industry resistance. Europe’s largest banks, along with lobbying groups, have challenged key parts of the proposal, arguing that disputes over the deposit guarantee system could derail the entire package ahead of next year’s European elections.
In a consultation process that closed on September 15, banks and industry groups submitted 121 formal responses to the Commission. Their feedback ranged from demands to remove certain elements to proposals for new measures, highlighting the challenges ahead.
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