European policymakers have been arguing that national markets are too fragmented for European banks to compete effectively on the global stage. Maria Luis Albuquerque, the EU finance commissioner, has backed greater cross-border consolidation, saying many of the sector’s problems are linked to a lack of scale and that major deals between banks in different member states should have happened much earlier. Her comments come as the European Commission reviews its merger framework and as several large financial institutions explore cross-border combinations.
The challenge of a fragmented banking market
The European banking market remains highly divided along national lines, despite the creation of the banking union and the wider EU single market. The European Central Bank has said that regulatory, supervisory and legal differences continue to limit cross-border consolidation and prevent banks from fully gaining economies of scale. Cross-border lending has also remained relatively limited, with intra-euro-area lending to the corporate sector accounting for around 16% of total corporate lending in the third quarter of 2025 according to a European Central Bank report.
Banks need scale to invest in technology, improve efficiency and compete with much larger financial institutions outside Europe. A European Parliament study published in April 2025 also linked the lower valuation of European banks compared with US peers to limited growth potential caused by fragmented markets and less developed capital markets.
A push for bigger European banks
Albuquerque’s comments about whether Europe needs larger banks capable of operating across several member states. She has argued that operating across borders and achieving greater scale can ultimately benefit customers, while questioning why major cross-border banking deals have remained relatively rare despite the existence of the banking union.
The European Central Bank has made a similar argument. In April 2026, the ECB Governing Council called for the euro area to function more like a single jurisdiction, allowing capital and liquidity to move more freely within cross-border banking groups. It said that deeper integration and greater cross-border competition could help banks gain economies of scale, diversify their activities and strengthen their business models, while stressing that simplification should not weaken financial resilience.
The European Commission has also placed banking competitiveness on its policy agenda. In July 2026, it announced measures intended to create a more integrated and efficient European banking market, with the stated aim of improving the sector’s ability to finance growth and innovation while maintaining financial stability.
Rethinking European merger rules
On 30 April 2026, the Commission published draft revised guidelines, representing the first major overhaul of the framework in more than two decades. The draft brings the existing horizontal and non-horizontal guidelines into a single framework and gives greater attention to innovation, investment, resilience, dynamic competition and efficiency.
This has opened a wider discussion about the creation of so-called “European Champions”, meaning companies large enough to compete internationally while operating across the European market.
However, the proposed changes do not remove the basic competition test. The Commission has said that merger control will continue to protect a competitive internal market. Legal analysis of the draft also notes that the changes provide more room for companies to demonstrate efficiency, investment and innovation benefits, but do not create a general exemption for large European mergers.
UniCredit and Commerzbank put the debate into practice
The proposed combination of UniCredit and Commerzbank provides one of the clearest examples of the debate. UniCredit has built a stake of almost 50% in Commerzbank, while German authorities have sought to protect the bank’s domestic role, including its Frankfurt headquarters, its listed status and its support for German medium-sized businesses. A combination would create a banking group with more than EUR 1.3 trillion in assets across Italy and Germany.
From a European perspective, the transaction illustrates how a bank can expand its scale across borders. From a national perspective, the discussion includes questions about jobs, lending to local businesses, headquarters and the continued role of an established domestic bank.
This tension has been identified more broadly in recent analysis of European bank M&A. A July 2026 review by De Brauw noted that political considerations can become as important as commercial, competition and prudential considerations when major banking transactions cross national borders.
Erste Group shows that cross-border deals are possible
The UniCredit-Commerzbank situation is not the only example of European banking consolidation. In January 2026, Austria’s Erste Group completed the acquisition of a 49% controlling stake in Santander Bank Polska and a 50% stake in Santander TFI for approximately EUR 7 billion. Erste described the transaction as the largest cross-border transaction in the European banking sector in the previous 20 years and said it would make the group the main shareholder, with de facto control of Poland’s third-largest bank by assets.
The deal demonstrates how cross-border consolidation can allow a bank to expand its presence in another European market rather than relying only on organic growth. It also shows why the current debate is broader than the creation of a small number of very large banks. Greater integration can take place through transactions that connect existing national banking markets.
The same question about European scale is appearing outside traditional banking. In September 2026, Euronext CEO Stéphane Boujnah said that a combination of the exchange businesses of Euronext and Deutsche Boerse could make sense, although he stressed that no talks were taking place. Euronext and Deutsche Boerse shares both rose around 2% following his comments, while both stocks were already up about 26% for the year at that point. Any transaction would face significant competition and regulatory hurdles.
What a European banking champion could mean
The case for larger European banks rests largely on scale. A bank operating across several major markets may be able to spread technology investment across a larger customer base, reduce duplicated systems and develop products for customers across multiple countries. It could also have greater capacity to compete for international corporate and institutional business.
There is evidence that policymakers see this as an important part of Europe’s competitiveness agenda. The ECB has linked integration and scale with stronger bank business models, while the European Commission’s banking competitiveness programme seeks to make the single market more effective.
At the same time, size alone does not guarantee better outcomes. A larger bank still needs effective governance, strong risk controls and the ability to integrate different businesses, technology systems and national regulatory requirements. Competition authorities must also consider whether consolidation could reduce choice or weaken competition in particular markets.
The debate is therefore shifting from whether European banks should grow to how they can grow across borders without undermining competition or financial stability.
The outcome will depend on whether European policymakers can reconcile two objectives that have traditionally been difficult to balance: creating financial institutions with enough scale to compete internationally while ensuring that European customers and businesses continue to benefit from strong competition, choice and financial stability.
