BE Magazine - August 2026

Banking Scale not large enough to explain the val- uation gulf by itself. This is crucial. Europe should resist the temptation to diagnose a structural competitive- ness problem as a regulatory prob- lem alone. Lower capital requirements may im- prove returns. They cannot compen- sate for weaker productivity, fragmented markets, slower consoli- dation and less-developed capital- market financing. The ECB’s position deserves consid- eration for precisely this reason. Its supervisors argue that strong cap- ital requirements have not materially constrained credit growth and that well-capitalized banks bring substan- tial long-term benefits. A resilient banking system reduces the probabil- ity of crises, protects depositors and strengthens confidence. The ECB also maintains that banks themselves have considerable work to do. Cost-to-income ratios remain high at many European institutions. Opera- tional structures can be complex. Technology investment has not al- ways produced the expected produc- tivity gains. From this perspective, regulation may be part of the competitive chal- lenge, but it cannot become an ex- planation for every weakness. Yet Europe must also observe what is happening elsewhere. The United States is moving toward a more accommodating capital framework. Federal Reserve propos- als include changes to leverage re- quirements and surcharges applied to global systemically important banks that could reduce required capital for a major institution by ap- proximately 5%. The Bank of England has moved cau- tiously in the same direction, reduc- ing its benchmark Tier 1 capital requirement from 14% to 13%. These are not dramatic departures from prudent banking supervision. They do, however, reveal a change in the policy conversation. Governments increasingly ask not only whether their banks are safe, but whether their financial systems are competitive enough to support national economic ambitions. BANKING AS STRATEGIC INFRASTRUCTURE This is where the European story be- comes geopolitical. Banks are private institutions, but collectively they form part of a coun- try’s economic infrastructure. They finance companies expanding abroad. They support trade. They arrange capital for infrastructure. ISSUE 212 AUGUST 2026 the BANKING EXECUTIVE 43