Nagel: capital does not make European banks less competitive, fragmentation does

Serguey Asael Shinder11 October 2026, 09:392 min read

Joachim Nagel, President of the Deutsche Bundesbank and a member of the ECB Governing Council, spoke on 1 October at an OMFIF roundtable in London on the future of European banking; the Bank for International Settlements republished the remarks on 8 October. The speech is a compact statement of the Bundesbank's position in the EU debate on simplifying bank regulation, which the European Commission plans to take forward with legislative proposals in the first quarter of 2027.

Where European banks stand. Nagel's assessment is that euro-area banks are resilient — neither the pandemic nor the 2023 banking turmoil unseated them — and that analyses by the Basel Committee, the ECB and the Bundesbank show the post-crisis reforms stabilised the sector and strengthened lending over the cycle. He concedes that US banks, and to a degree UK banks, generally outperform continental European banks on net interest margins and price-to-book valuations, while noting falling non-performing loans and cost-to-income ratios in Europe.

Two findings he leads with.

• Competition is rarer than assumed. Bundesbank supervisors analysed cross-border links and found that German and US banks rarely compete in local lending markets. Competition with large US institutions exists in investment banking and trading, which account for a much smaller share of capital requirements than ordinary lending. For corporate loans in Germany, the competitors are other German and European banks.
• Capital is not the drag. ECB and Bundesbank researchers asked whether higher capital hampers efficiency. The answer, per Nagel, is no: higher capital lowers interest expenses and earnings volatility, cutting funding premia and raising profitability.

What he blames instead — and proposes. The gap, in his account, comes from structure: US banks benefit from deep, integrated capital markets, while Europe's banking and capital markets remain fragmented and its rules differ across countries. He set out three points:

1. Integrate the financial system through the Savings and Investments Union, including more retail participation in capital markets and more harmonised supervision of market infrastructure.
2. Simplify regulation with proportionality. The Commission's expected focus on market integration, for example capital and liquidity waivers, tends to favour large cross-border banks. Nagel asked that it be matched by significantly simpler requirements for small, less complex banks, while keeping high prudential standards.
3. Watch non-banks. Non-bank financial institutions now hold about half of all financial assets, in Europe as globally. 14% of German banks' total assets are claims on domestic and foreign NBFIs; where those funds become opaque private credit, banks need stronger risk management and stricter loan assessment.

Why the euro desk notes it. The ECB Governing Council sets policy for euro-area rates; its members also shape how banks transmit those rates to borrowers. Nagel's message — keep capital high, cut complexity for small lenders, scrutinise exposure to private credit — is the Bundesbank's line going into the 2027 legislative round.

Source: BIS, The competitiveness of the European banking sector, opening remarks by Joachim Nagel, London, 1 October 2026 (published 8 October) — https://www.bis.org/speeches/20261008-competitiveness-european-banking-sector