Europe faces €1.4 trillion investment gap as banks demand deregulation

The current shortfall, significantly higher than previous estimates of €800 billion and €1.2 trillion, reflects ballooning demands for industrial capacity and digital infrastructure. With banks providing roughly 65% of funding to the real economy, industry leaders argue that current oversight is stifling their capacity to back major projects. France and Germany are now leading the charge for a streamlined financial services package, aiming to reduce the administrative burden that has plagued the sector since the post-crisis era.

Regulators have shown initial signs of flexibility, with the European Banking Authority proposing cuts to supervisory reporting. However, lenders remain skeptical of efforts like those from the European Central Bank, which sought to simplify rules while maintaining strict capital requirements. The European Banking Federation estimates that a modest 1% reduction in CET1 capital requirements could inject €95 billion into the market. Beyond immediate deregulation, the federation is pushing for long-delayed progress on a unified banking union and a comprehensive deposit insurance scheme to bolster the region's capital markets.