Back in 2008, the world was hit by the worst financial crisis since the Great Depression. Big financial institutions, confident they were “too big to fail,” took reckless risks. They believed that if things went south, governments—and ultimately taxpayers—would step in to save claiming that loosening the rules will make Europe more competitive.
Unfortunately, many policymakers are starting to buy into this message. As a result, the very rules put in place to keep the financial system safe are being rolled back—putting us at risk once again.
The Race to the Bottom
In some parts of the EU, just stalling banking reforms isn’t enough anymore—some countries are now pushing to weaken the rules altogether. And that’s triggering a worrying trend: a race to the bottom, with Europe trying to keep up with looser financial rules in the US and the UK.
Earlier this year, France suggested major changes to important banking rules like the FRTB. That was quickly followed by calls to review the EU’s entire approach to regulating banks. Now, the European Commission is working on a report to look into how “competitive” the EU banking sector really is. It’s clear the mood has shifted. With financial industry lobbyists ramping up pressure, there’s a growing belief that more risk somehow means more competitiveness. And just like that, we’re seeing serious attempts to undo the safeguards put in place to protect the public.
But here’s the thing: weakening these rules doesn’t make the risks go away. It just shifts the burden onto everyone else—ordinary people, taxpayers, and the wider economy. When big banks think they’re too important to fail, they tend to take bigger risks. And when those risks backfire, it’s the public that ends up cleaning up the mess. It’s the same pattern we saw in 2008: the profits stay private, but the losses are paid for by society.
And it’s not just history—we’ve had recent wake-up calls too. In March 2023, Credit Suisse—one of the world’s largest banks—collapsed after years of poor decision-making and unchecked risk-taking. Regulators failed to act in time, and eventually, the government had to step in with an emergency takeover to stop the fallout. Yes, that meant public money was involved.
And it wasn’t an isolated case. Around the same time, Silicon Valley Bank in the US also went under. Regulators had to scramble to stop the damage from spreading. In both cases, weak oversight allowed risks to pile up silently in the background. When things fell apart, it was public institutions—governments and central banks—that had to jump in and save the system.
The Choice
The lesson here is simple: instead of loosening the rules designed to protect us, we need to make them stronger. That means fully implementing global standards—and making sure there’s strong, independent supervision to enforce them.
It’s been just 16 years since the financial crash of 2008, and yet it feels like we’re drifting back toward the same old habits: delays, loopholes, and a return to risky behavior in the banking world. That should worry all of us. But here’s the good news: another crisis isn’t guaranteed. It’s a choice.
If we push back against this global race to weaken banking rules, if we stay alert to new risks, and if countries work together rather than compete to lower standards, we can avoid repeating the past. Financial stability isn’t just about protecting the banking system—it’s about protecting people, communities, and the future we want to build.
It’s been over 15 years since the global financial crisis, but the lessons we learned from it are still just as important today. In response to that crisis—and the European debt crisis that followed—Europe strengthened its financial rules and institutions. A major part of that response was the creation of the banking union, which has helped make the financial system more stable. While the challenges we face today are different, one thing remains clear: we still need more European cooperation and a stronger internal market to meet them.
Let’s take a look at how far we’ve come. The financial crisis hit the real economy hard—Europe’s GDP dropped by 4.3% in 2009 alone. To stop things from getting worse, governments had to step in and support the financial system. That meant using large amounts of public money to help banks, which put a huge strain on national budgets—even more than the support given to countries during the euro area debt crisis.
Fast forward to today, and the picture looks much better. European banks are now more stable and better prepared than they were a decade ago. The number of bad loans has dropped sharply, and we now have a strong system of European banking supervision. This system applies the same rules across the board, regularly checks for risks, and can step in early when banks show signs of trouble.
We also have the Single Resolution Mechanism, which is there to manage problems in the banking sector. The best part? It’s funded by the banking industry itself—not by taxpayers. That’s a big shift from how things were done during the crisis.
All of these improvements have helped banks manage risk more effectively. And while risk is a normal part of banking—like turning people’s deposits into long-term loans or spreading investments—it needs to be managed responsibly. As supervisors, we’re not here to stop banks from taking risks. Our job is to make sure those risks don’t get out of hand, and that the financial system keeps working smoothly.
When banks take bigger risks, they need to hold more capital to protect themselves—and the economy—if something goes wrong. That way, if a crisis hits, people’s savings are safe, and businesses can still get the funding they need to grow.
The financial stability we’ve seen in recent years is the result of a collective effort. Strong political choices—especially around the creation of the banking union—have helped shape better regulations and a more solid institutional framework. The European Central Bank (ECB) now directly supervises the euro area’s biggest banks, working closely and in good faith with national authorities. Many banks have stepped up, improving how they manage risk and run their operations. And where there are still gaps, we’re working to close them.
But it’s also true that some of the major shocks we’ve faced recently—like the COVID-19 pandemic and the energy crisis—were cushioned by swift action from policymakers. When GDP took a sharp dive and prices surged, governments stepped in with fiscal support to help households and businesses stay afloat. Thanks to those measures, we avoided a wave of business bankruptcies and major losses in bank loans.
A strong financial sector also benefits the wider economy. Banks with solid capital buffers are in a better position to support their customers, especially during tough times. We’ve seen this most clearly in countries that were hit hardest by the financial and sovereign debt crises. Back then, many of those countries had banks burdened with bad loans and struggling to support growth. But today, the picture has improved significantly.
Take Greece, for example. In 2016, nearly half of all loans were non-performing. Now, that number has dropped to just over 3%, and the country’s economy is growing at 2.4%, well above the EU average of around 1%. Similar positive trends are playing out in Spain, Ireland, Portugal, and Cyprus.
Looking ahead, the next decade will bring fresh challenges. Geopolitical tensions are rising, the energy transition is underway, and shifts in global trade are creating new demands on the real economy—and, by extension, on banks. At the same time, offers exciting opportunities for banks to grow and modernize, especially within the EU’s internal market. But there’s also new competition. Emerging financial service providers, often less strictly regulated, are entering the scene—and this could push banks to take on more risk.
That’s why now is a crucial moment. Policymakers, regulators, and banks must work together to make sure the European banking sector is ready for the future. That means planning for upcoming risks, making smart political choices to strengthen the banking union and internal market, and building a regulatory framework that keeps our financial system strong and resilient.
Checking In: How Resilient Are Europe’s Banks?
When we talk about strong, competitive banks, one word keeps coming up: resilience. It’s a term that got a lot of attention during the pandemic, and it’s still just as important today. Economist Markus Brunnermeier describes resilience as the ability to handle shocks without suffering lasting damage—like a reed that bends in the wind but doesn’t break.
Resilience in banking has two key sides. First, there’s financial resilience. This means: can banks absorb financial shocks on their own? Do they have enough capital and cash on hand to weather a crisis?
The good news is, yes—they’re in a much better place than they were when the banking union first started. Not only are banks holding more capital, but the quality of that capital has improved too. That’s helped restore market confidence in Europe’s banks. And as interest rates have risen, so has profitability—another sign of strength.
Germany is a good example. Over the past ten years, German banks have significantly improved their capital and liquidity positions—just like we’ve seen across the euro area. One thing worth noting: while the overall leverage ratio (how much banks rely on debt) has grown more slowly, the risk-weighted capital ratio (a key measure of how well banks can handle risk) has increased more, showing that banks are focusing not just on size, but on safety too.
Their suppliers, and the businesses connected to those suppliers, also feel the pressure. Banks need to look at the whole value chain when managing these risks.
Right now, non-performing loans (NPLs)—that is, loans that borrowers are struggling to repay—are still relatively low at 2.3%. But there are signs this could be changing. Interestingly, some increases are happening in countries like Germany and Austria, rather than in those that struggled with loan defaults in the past. Industries like commercial real estate and small to mid-sized businesses seem to be feeling the strain the most.
Staying Focused on Climate and Digital Risks
We can’t talk about the future of banking without talking about climate and environmental risks. Let’s be clear—we’re not here to set climate policy. But we do have a responsibility to make sure banks are properly managing these risks and building the resilience they need to face them.
What We Need to Focus on in the Next 10 Years
We can’t tackle the challenges of the next decade alone—it’ll take strong teamwork across the board. That means having a solid regulatory framework to support us. Thankfully, we’ve got a good one in place now, and we need to keep the momentum going. It’s important that we, as a society, stay on the same page: loosening rules or weakening the system in the name of short-term gain will only hurt long-term stability and growth.
Banks play a huge role here. They need to be and have strong risk management in place. That’s what makes them reliable partners for the real economy. So when we talk about making Europe more competitive, we need to be careful not to use that conversation as an excuse to roll back important protections. In fact, strong and stable banks are part of what gives Europe a competitive edge.
The world has changed, and with it, the risks have grown. Everyone involved—banks, regulators, and policymakers—needs to be ready for what’s ahead.
For banks, the current period of good profitability is a golden opportunity. It’s a chance to build up resilience—not just financially, but in how they operate day to day. And with many experienced professionals retiring, there’s a generational shift happening. That makes it all the more important—especially for banks in Germany, where defaults have been low in recent years—to hold onto the knowledge and skills needed to handle crises and manage loan defaults if they arise.
On the public sector side, our response to this new reality should focus on three main things: smart supervision, transparent reporting, and balanced regulation. These pillars will help ensure we’re not just reacting to change but staying ahead of it.
Making Supervision Smarter and More Effective
As supervisors, we’ve been working hard to make our processes faster and more efficient. Just last year, we introduced a major reform aimed at streamlining how we work. At the same time, we’re making sure that when we identify problems at banks, those issues are fixed more quickly than in the past. We’re also running a pilot project to speed up approval times for while still keeping a close eye on the risks they can pose.
Another area where we see room for improvement is regulatory reporting. By embracing smarter supervisory technology—what we call “suptech”—and better connecting supervisory and statistical reporting systems, we can cut costs for both banks and supervisors. Many banks could also benefit from upgrading their own internal information and reporting systems. Not only would that improve how they manage risk, but it would also make it easier for them to respond to our requests.
There’s also an ongoing discussion about whether the current regulatory framework is too complex. That’s a fair conversation to have—but we need to keep two key principles in mind. First, any changes must not weaken the resilience of the financial system. And second, these decisions should be based on real evidence, especially what we see in our day-to-day work. And the evidence is clear: stronger banks don’t mean weaker lending or slower growth. In fact, resilience and growth go hand in hand.
At the same time, there’s more policymakers can do—especially when it comes to finishing what we started with the banking union. Now is the perfect time to close the remaining gaps, particularly around how we handle banks in trouble. A credible and complete resolution system discourages excessive risk-taking and lowers the cost of resolving bank failures when they do happen.
Let’s not forget what happened just two years ago with regional banks in the U.S. That experience showed us that even mid-sized banks can cause broader problems if things go wrong. In such cases, using structured resolution tools—rather than letting them go through insolvency—can be the better option to protect financial stability.
That’s why we see the European Commission’s recent proposal to strengthen the crisis management framework as a step in the right direction. The Single Resolution Board (SRB) needs the resources to bring more mid-sized banks into the resolution framework. And unlike in other parts of the world, Europe still lacks a reliable backup option—a public sector “backstop”—to provide emergency liquidity during a bank resolution. That’s something we really need to fix.
Looking Ahead: What Europe’s Banking System Needs Next
One important step we still need to take is creating a European deposit insurance scheme. In today’s digital world, financial risks and business models don’t stop at national borders—so why should deposit protection? People across Europe should feel confident that their savings are safe, no matter where their bank is based. That confidence depends not just on shared supervision, but also on a shared safety net for deposits. A common deposit insurance scheme would also help reduce the link between banks and their national governments—something that still poses a risk in times of crisis.
Another key area for progress is the capital markets union. This would help break down barriers that currently limit banks’ ability to do business across borders. While we already apply shared standards at the European level—like when we assess bank mergers or issue licenses—national differences still exist. For example, insolvency and real estate laws vary from country to country, which makes it harder to fully benefit from the internal market.
In Conclusion
The banking union was Europe’s powerful response to past financial crises. It helped reduce risky assets, strengthen banks, and establish consistent supervision across the euro area.
Now, we need to take that progress even further. With new risks and uncertainties on the horizon, we should be aiming for more Europe, not less. Stronger integration, better regulation, and a completed banking union will help us prepare for whatever comes next. While neither banks nor supervisors can predict the future, we can build up resilience to face it confidently. That means making sure banks are managing risk effectively, and that our resolution tools are ready for action. The better prepared we are, the more we protect savers and taxpayers when things go wrong.
Some argue that we should loosen banking rules to help boost competitiveness and growth. That may sound appealing, but the truth is: deregulation won’t fix Europe’s growth challenges. Instead, we need real solutions—like encouraging innovation and unlocking the full potential of the Single Market. Reports by experts like Mario Draghi and Enrico Letta have already pointed us in the right direction.
Yes, we should continue making regulation, supervision, and reporting as smart and efficient as possible. But believing that weaker oversight will somehow lead to stronger growth is wishful thinking.
In reality, solid and effective regulation is what keeps our financial system stable. And financial stability is the foundation for long-term, sustainable growth. The painful impact of past financial crises can easily fade from memory—but we must not let history repeat itself. Now is the time to act and strengthen our system for the future.