How have European banks developed along different dimensions of international competitiveness?

At the request of the European Parliament’s Economic and Monetary Affairs Committee (ECON), the authors compare the competitiveness of European banks to their US counterparts. The analysis highlights structural differences between the two systems, particularly Europe’s reliance on traditional bank intermediation versus US’s market-based model. European banks generally lag in profitability and market valuations, but remain central to credit provision and financial inclusion across the EU. US banks have benefitted from more favourable macroeconomic scenarios. At the same time, recent improvements in European bank’s performance are driven by temporary macro factors, raising concerns about sustainability. Regulatory harmonisation, capital market development, and integration are important factors to enhance the competitiveness and resilience of Europe’s banking sector. Considering both quantitative and qualitative indicators is also important to better capture banks’ contributions to the economy and overall welfare.