Could Pan-European Banks Be the Answer to Fragmentation in EU’s Banking Sector?

The primary article from Börsen-Zeitung (subject to translation) asserts that Europe “will need four or five really big banks” to compete at the level of its American and Asian rivals. The argument is rooted in the fragmented nature of Europe’s banking sector, which impedes scale, profitability, and global competitiveness. Banking leaders and regulators across several countries have increasingly called for consolidation—both domestic and cross-border—as a solution. [2][4]

Regulatory and structural constraints: European banks operate under divergent national rules—on capital, liquidity, insolvency, and governance—which hamper cross-border mergers. The European Central Bank has repeatedly flagged these differences as sources of vulnerability. Building “really big banks” would likely require harmonization of regulation and institutional frameworks, especially in capital markets and banking supervision. [3][4][6]

Political resistance and national interests: Germany has been particularly resistant to losing control of its banking champions. UniCredit’s approach to gaining a controlling stake in Commerzbank has triggered strong backlash from the German government, citing concerns about jobs, regional service, and financial sovereignty. Thus, even transactions promising scale can be blocked or modified due to political or national interest concerns. [1][5]

Hierarchy of scale: While the U.S. banking sector has institutions whose size rivals or exceeds those of entire European systems, Europe’s “top five” banks by assets are individually far smaller. The market share concentration varies dramatically by country—from over 80-90% in smaller EU countries to 30-40% in larger ones. Germany remains among the least consolidated. [6][1]

Strategic implications: Consolidation promises cost synergies, more efficient investment into technology and risk control, and stronger balance sheets better able to finance climate transition, digitalization, and geopolitical resilience. But there are significant risks: cultural integration, public backlash, potential monopoly concerns, and systemic risk from oversized institutions.

Open questions include:

• Exactly how many “really big banks” are required, in what markets—for example, what asset size or ROE threshold defines “big.”
• What deal structures (e.g. stake-buildings, synthetic derivatives, full takeovers) can navigate German, French, Italian regulatory and political constraints.
• What specific regulatory harmonization steps (banking union, capital markets union, unified insolvency regimes) are politically feasible in the near and medium term.
• How will public and labor responses be managed, especially in cases of cross-border mergers where domestic presence and employment are at stake.