François-Louis Michaud's interview with Irish Independent: Banks should be less ‘skittish’ about lending to boost economic growth, says top EU regulator

Banks should be less ‘skittish’ about lending to boost economic growth, says top EU regulator

Q. The Irish Presidency has taken over the Council of the EU at a pivotal moment for financial services. What are your priorities in Dublin?

A. The Irish Presidency comes at an important time for Europe’ s financial sector. There are several significant legislative and policy discussions underway, particularly around strengthening Europe’s capital markets and improving the competitiveness of the banking sector.

My priority is to engage early with Irish authorities, the Central Bank of Ireland and industry stakeholders. The EBA works very closely with its members across Europe, and the Central Bank of Ireland is an important contributor to our work. These discussions are also timely given the broader debate on the future of Europe’s financial system and the forthcoming discussions under the Irish Presidency.

Q. How important is the current debate on the Savings and Investments Union and capital markets integration?

A. Europe needs to move from discussing capital markets integration to implementing it. The rebranding of the Capital Markets Union into the Savings and Investments Union reflects a desire to inject new momentum into this agenda, and now is the time to make meaningful progress.

One particularly important area is securitisation. Well-designed securitisation frameworks can increase banks’ capacity to provide lending while also creating attractive long-term investment opportunities. It is one of the clearest examples of how banking, insurance, pensions and capital markets can work together to support economic growth.

Progress in this area would strengthen Europe’s financial ecosystem and support the broader objective of channelling savings into productive investment.

Q. The European Commission’s recent report on banking competitiveness has generated significant debate. What is your main takeaway?

A. The most important aspect of the report is that it takes a comprehensive and honest look at the European banking framework. Fifteen years after the global financial crisis, Europe has largely completed the rebuilding of its regulatory architecture.

European banks are in a strong position. Capital levels are high, profitability has improved, cost of risk remains contained and the implementation of global banking reforms is nearly complete.

We have therefore reached a point where policymakers can take a step back and ask whether the framework is working as intended, whether simplifications are possible, and whether all parts of the system fit together effectively.

A key issue is the interaction between microprudential supervision, macroprudential policy and resolution frameworks. These elements have all been developed successfully, but often with separate objectives. The next stage is to look at the system holistically and ensure the various layers of regulation work together in the most efficient manner.

Q. Does the banking sector need lower capital requirements to enhance competitiveness?

A. I would not frame the discussion as one of reducing capital requirements.

The banking sector is operating in an increasingly uncertain world and faces major investment needs, particularly in digital transformation, cybersecurity and resilience. Strong capital positions remain essential.

The key question is not whether we should release capital, but rather whether we have sufficient clarity on how much capital is needed in the system and for what purpose. Europe has built substantial capital buffers over the past decade and stress testing exercises consistently demonstrate that banks remain resilient even under severe adverse scenarios.

The discussion should focus on ensuring that the overall framework is coherent and provides certainty to institutions, while maintaining the resilience that has been achieved.

Q. Should banks play a bigger role in financing Europe’s future investment needs?

A. Yes. Banks remain at the centre of financing the European economy.

There are major investment requirements associated with the digital transition, the green transition, demographic developments and security-related expenditures. European banks have strong capital positions and should play a leading role in supporting these investments.

The priority is to provide sufficient regulatory clarity and predictability so that banks can deploy capital with confidence. A well-functioning regulatory framework should encourage prudent risk-taking and investment in areas that support Europe’s long-term growth.

Q. Why is cross-border banking still so limited in Europe?

A. One of the main obstacles remains the fragmentation of the Single Market. Differences in insolvency regimes, taxation systems and market practices continue to create barriers to cross-border activity.

At the same time, there are still lingering concerns from the global financial crisis about whether cross-border banking groups would provide support across jurisdictions during periods of stress.

However, Europe has built a significantly stronger supervisory and resolution framework over the past decade. Banks should increasingly take advantage of the opportunities offered by the Single Market. Greater cross-border activity would support competition, improve efficiency and help institutions achieve the scale required to compete globally.

Cross-border consolidation and expansion are positive signals that the Single Market is functioning and developing as intended.

Q. European banks often argue that they lack the scale of their US competitors. Is this a real issue?

A. In some areas, particularly wholesale and investment banking, scale remains an important challenge for European institutions.

Size matters because banks need to invest heavily in technology, cybersecurity and innovation. The ability to spread these costs over a larger business base is a competitive advantage.

By contrast, in many retail banking activities European banks remain competitive. The challenge is therefore not uniform across all business models. The focus should be on enabling banks to achieve the scale necessary to support investment and innovation while preserving a strong and competitive banking sector.

Q. How do you assess the risks associated with digitalisation, artificial intelligence and cybersecurity?

A. These are among the most significant risks facing the financial sector today.

Artificial intelligence offers major opportunities, but it also introduces new operational and cybersecurity vulnerabilities. Financial institutions increasingly depend on sophisticated technology providers and must understand and manage those dependencies carefully.

Europe has taken an important step with the Digital Operational Resilience Act (DORA). Through DORA, financial institutions are required to map and monitor critical ICT providers, while European authorities oversee the most systemic third-party technology providers.

This improves transparency, strengthens risk management and helps the financial sector better understand and address operational vulnerabilities.

Q. Do geopolitical tensions and bond market volatility pose risks to European banks?

A. These issues are carefully monitored through the EBA’s risk assessment and stress-testing activities.

At present, our analyses do not indicate that sovereign bond exposures represent a major source of vulnerability for European banks. The sector has demonstrated resilience in a range of adverse scenarios, and risk management practices have improved considerably over recent years.

While geopolitical developments always require close monitoring, we do not currently see evidence of significant systemic concerns arising from sovereign exposures.

Q. Where does climate risk sit on the banking sector’s risk agenda today?

A. Climate risk remains a significant issue and has not disappeared from the supervisory agenda. The increasing frequency of extreme weather events demonstrates that the challenges associated with climate change remain very real.

Banks have invested heavily in assessing climate-related risks and engaging with clients on transition planning. The focus now is increasingly on ensuring that banks integrate these risks effectively into their own risk management processes rather than relying solely on detailed regulatory requirements.

The objective is to maintain strong awareness while allowing institutions greater responsibility in managing and addressing climate-related risks.

Q. Fifteen years after the financial crisis, what remains unfinished?

A. The principal unfinished task is ensuring that all elements of Europe’s financial architecture work together as a coherent whole.

Since the crisis, Europe has developed stronger prudential supervision, macroprudential frameworks, resolution mechanisms and, more recently, anti-money laundering structures. Each has strengthened financial stability, but the next challenge is ensuring that the overall framework is fully coherent and efficient.

We need a more holistic approach that assesses how these different components interact and whether they collectively deliver the intended outcomes.

At the same time, there is growing scope to simplify the regulatory rulebook. As the system has matured, some reporting and compliance requirements can be streamlined without compromising resilience. The objective is a framework that remains robust while becoming more efficient and proportionate.

The interview was conducted by Sarah Collins

Irish Independent