EU weighs bank rule changes as Wall Street earnings widen gap

The European Commission is preparing a bank competitiveness plan that could ease capital and reporting requirements, including discretionary leverage add-ons above the EU’s basic 3% leverage ratio, according to CNBC and a Financial Times report. The review, due Friday and expected to set out legislative changes for 2027, comes as large U.S. banks report stronger trading and dealmaking revenue, widening attention on Europe’s scale disadvantage in capital markets.

CNBC reported that Brussels wants to improve the position of European lenders, which have lagged U.S. rivals in trading, investment banking and capital markets for more than a decade. The Commission’s report is expected to address capital rules, administrative demands on banks and the framework for cross-border consolidation.

Capital rules under review

According to CNBC, the Commission is considering changes to “Pillar 2” leverage-ratio requirements. Pillar 2 tools allow supervisors to require individual banks to hold extra capital beyond minimum rules when regulators see institution-specific risks.

The EU’s basic leverage ratio rule is 3%, CNBC reported. Reducing additional supervisor-imposed buffers would leave banks with more balance-sheet capacity, although the effect would depend on the final text, national implementation and each bank’s capital position.

The Financial Times reported that a draft also includes reductions in extra capital buffers, lighter reporting requirements and further detail on a common European Deposit and Insurance Scheme. Such a scheme is intended to give depositors comparable protection across the bloc, a condition that policymakers and analysts have said could make cross-border banking groups easier to operate.

The European review follows separate regulatory easing efforts in other financial centres. CNBC reported that U.S. authorities have proposed cutting capital requirements for the largest banks by nearly 5%, while U.K. regulators have also moved to relax some bank rules.

Competitiveness and returns

Jakub Lichwa, a member of TwentyFour Asset Management’s multi-sector bond portfolio management team, told CNBC that European authorities are watching changes in the U.K. and U.S. and do not want their banks to face a relative disadvantage. He said lower capital requirements can help banks generate higher return on equity, which may support investor interest in European bank shares.

Lichwa also cautioned that lower capital levels do not by themselves improve how banks operate. He told CNBC they could, at the margin, help European lenders compete with global peers.

The timing coincides with a strong U.S. bank earnings season. CNBC reported that JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs beat expectations in the second quarter, helped by stronger trading revenue and a recovery in dealmaking. In Europe, Santander, UniCredit, UBS and Deutsche Bank are due to report later this month, according to CNBC.

Consolidation remains difficult

Andrew Stimpson, head of European banks research at KBW, told CNBC that European policymakers now see bank rules through a global competitiveness lens. He said the region’s strategic priorities, including defence, artificial intelligence infrastructure and energy infrastructure, require large-scale financing from banks and capital markets.

Stimpson said the Commission report is expected to discuss deregulation as well as legal changes that could make cross-border bank mergers more likely. In his view, larger European banking groups would be better placed to compete domestically and internationally.

European banking remains divided by national markets, supervisory practices and political constraints. CNBC cited UniCredit’s effort to build a controlling stake in Commerzbank as one example of the obstacles. The approach has faced legal and political resistance in Germany, where the federal government remains Commerzbank’s second-largest shareholder.

Caroline Liesegang, head of capital and risk management at the Association for Financial Markets in Europe, told CNBC that fragmentation, trapped capital and liquidity, and regulatory complexity still limit banks’ ability to support investment across the EU single market. She urged the Commission to remove unnecessary barriers and improve capital allocation efficiency.

Liesegang said legislative proposals expected in early 2027 will be a critical test of whether the EU can improve the competitiveness of its banking sector. The final scope of the Commission’s plan will determine how far Brussels is prepared to shift from post-crisis caution toward a framework designed to support larger, more integrated European lenders.

This story draws on original reporting from CNBC.