ECB Supervisor Calls for Europe to Remove Barriers to Bank Mergers

European Central Bank (ECB) Supervisor Claudia Buch has urged Europe to harmonize bank merger rules, warning that fragmented regulations risk leaving the bloc exposed to financial shocks and instability.

The ECB has long pushed for more bank mergers, arguing they're needed as Europe’s largest lenders remain much smaller than their US peers. But political resistance, driven by fears of losing national champions to foreign rivals, has often blocked cross-border takeovers.

This was highlighted in the opposition to UniCredit’s recent bid for Commerzbank. CEO Andrea Orcel defended the proposal, arguing that Europe’s banks are too small to meet the bloc’s funding needs and stressing the importance of larger, more resilient institutions to support the sector.

However, German Chancellor Olaf Scholz described the potential takeover as an “unfriendly attack”, arguing that hostile bids are inappropriate in Europe and not in banks’ best interests, prompting the German government to firmly oppose the deal.

Buch also noted that despite efforts to harmonize rules for cross-border mergers, national-level differences still pose significant obstacles to creating pan-European banks.

These differences, such as in insolvency rules, mortgage markets, and corporate governance, make it harder for banks to accurately value each other’s assets, creating uncertainty that can discourage cross-border mergers.

Additionally, the EU still lacks a common deposit insurance scheme, and its rules allow member states significant flexibility in how they apply certain provisioning requirements, Buch said.

She said this fragmentation not only limits efficiency but also makes financial systems more vulnerable to uneven shocks and instability.

As a result, Europe should focus on better harmonizing these rules to encourage mergers, leading to larger banks that can benefit from economies of scale and scope, according to Buch.