As per a new study by the European Banking Federation (EBF), the continent faces a widening 1.4 trillion euro (USD 1.62 trillion) annual investment gap that risks holding back its economic objectives, including energy transition.
The new study, titled “European Bank Competitiveness,” prepared by management consulting company Oliver Wyman, urges simpler rules to help banks in the region finance growth. The figure of 1.4 trillion euro has been revised from the 2024 and 2025 estimates of 800 billion euro and 1.2 trillion euro, respectively.
“The debate on European competitiveness has entered a decisive phase. Europe’s additional annual investment needs now stand at approximately 1.4 trillion euro—significantly above the 800 billion euro estimated in the 2024 Draghi report. The challenge is not only the scale of the financing required. Much of Europe’s future investment demand is concentrated in long-duration, capital-intensive, and higher-risk assets. Europe’s future prosperity, therefore, depends not only on how much capital it can mobilize but also on whether capital can be mobilized across the full risk and maturity spectrum,” the EBF report noted.
As per the EBF, the widening investment gap reflects rising funding needs in areas such as energy, defense, digitalization, and industrial capacity. In Europe, banks provide around 65% of financing to the real economy, far more than in the United States. However, as per the sector, the regulatory framework is constraining lending, and this requires a change.
“Banks are increasingly constrained, while alternative financing channels remain underdeveloped and fragmented relative to other major economies. Banks remain central to bridge the gap, but successive layers of regulation, increasing supervisory burden, and persistent market fragmentation have reduced their capacity and incentives to support the investments critical to Europe’s growth,” the EBF stated.
“Banks have optimized within these constraints and are now profitable, but they have shifted towards less capital-intensive lending activities,” it noted further.
The EBF study comes just before the European Commission’s pending assessment of the region’s banking sector’s competitiveness. While the procedure is expected to happen in July 2026, legislative proposals based on the finding will likely follow in 2027.
France and Germany have urged the Commission to bring forward an ambitious “Financial Services Simplification Package” to make EU rules easier to navigate and less burdensome.
In April, the European Banking Authority (EBA) outlined measures to simplify supervisory reporting and reduce the burden on the financial institutions. In December 2025, the European Central Bank (ECB) also proposed streamlining rules, though without easing overall capital requirements, something that immediately prompted criticism from lenders.
“With an additional 150 billion euro, banks could target around 20% of Europe’s additional financing needs. A 1% reduction in CET1 capital requirements would release 95 billion euro,” the EBF said, while urging faster progress on strengthening capital markets and completing the banking union, including a common deposit insurance scheme.