Europe’s leading banking lobby has urged policymakers to strip away national barriers that it says are stunting consolidation, cross-border lending and the global competitiveness of the region’s lenders.

A new report from the Association for Financial Markets in Europe (AFME) argues that the European Banking Union still suffers from critical “implementation gaps”, ranging from inconsistent supervisory rules to the absence of a shared deposit insurance scheme. AFME calculates that €225 billion of capital and €250 billion of liquidity remain “trapped” in subsidiaries because cross-border waivers are rarely granted, preventing parent banks from shifting funds during periods of stress.

Caroline Liesegang, managing director of capital and risk management at AFME, said the regime forces banks to navigate “a maze of national rules, fragmented deposit guarantee schemes, and inconsistent supervisory practices”, turning potential mergers into “costly, drawn-out negotiations” that dampen economies of scale.

The lobby group also found that once European lenders expand beyond €450bn in assets, administrative costs begin to rise relative to total assets, eroding the very efficiencies that consolidation is meant to deliver. By contrast, United States banks routinely shift capital between states, helping them reach far larger balance sheets.

Adam Farkas, AFME’s chief executive officer, warned that profitability is “severely hindered by the fragmented approach that is trapping capital and liquidity”, adding that removing the hurdles “would be transformational in terms of economic efficiency”.

Regulatory ring-fencing is only one obstacle. AFME highlighted wide divergences in macroprudential buffers, opaque calculations for contributions to the Single Resolution Fund, and what it calls “excessive” minimum requirements for own funds and eligible liabilities. The weighted-average MREL target for eurozone banks stands at 28 per cent of risk-weighted assets, compared with 22 per cent in the United States and 27 per cent in the United Kingdom.

Complex merger approvals present another drag. Banking takeovers inside the European Union took an average of 285 days to complete over the past three years, a full 100 days longer than a decade ago, and far slower than comparable deals in Switzerland, the United States or China.

AFME’s report proposes six policy steps, including harmonising intra-group exposure limits, simplifying capital buffers and undertaking a full review of resolution fund contributions. The group insists that progress on those fronts need not wait for agreement on a pan-European deposit insurance scheme, which has stalled for years.

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