While European households save around 15% of their income (nearly double the 8% rate in the US), about €11 trillion—over one third of EU household savings—sits in bank deposits. At the same time, European tech startups regularly fly to Silicon Valley seeking the private equity that should, in theory, be available at home. If, instead, a Spanish start-up wants money from German pension funds and Dutch family offices, it must comply with three national rule-books. Between 2008 and 2021 almost 30 % of European “unicorns” moved their headquarters abroad (Draghi, 2024).
This disconnect is a disappointing outcome after nearly sixty years of trying to integrate Europe's capital markets. The goal was to let any saver in Europe seamlessly put their money in any European opportunity, and let companies find investors throughout the continent, whether through stocks, bonds, or loans. Yet despite multiple attempts, from the 1966 Segré Report on European financial markets, which first noted the "patchwork of duplicative and diverging rules," to the 2015 Capital Markets Union, progress remains minimal: slightly easier cross-border share listing, limited EU-wide fund sales, some retail access to some private-equity funds, a crowdfunding passport, and looser insurance-capital rules for equity.
As an ECB report recently put it, “the progress made in developing and integrating the capital markets has been limited, impacted by the insufficient advancement of the most ambitious reforms needed to transform capital markets.”
The result is an overdependence on banks, which typically favor established companies with existing relationships and assets to pledge rather than innovative startups. Young, risky ventures need equity financing—money invested for ownership rather than requiring fixed repayments—but Europe's fragmented and inefficient system makes this difficult to secure domestically.
The Commission's newly released Savings and Investments Union proposal (March 2025) continues this pattern of slow, incremental change. It makes proposals such as EU “Savings and Investment Accounts” with possible tax relief, financial-literacy drives, automatic pension enrolment, simpler listings, more securitisation, less “gold-plating” (extra national rules added to EU directives) and easier withholding-tax refunds. It also proposes to increase the European Securities and Markets Authority’s (ESMA) powers, yet still leaves twenty-seven supervisors in place–contrary to the suggestion in Mario Draghi’s report that a single EU regulator was needed.
In sum, the new plan offers slow harmonisation while preserving the banks’ central role. The only measure with bite is more loan securitisation, which frees some bank capital but does not increase equity funding for companies. The likely outcome is more “bancarisation” of our economies, as finance continues to flow through banks.
The banking stranglehold–and why member states protect it
In Europe, banks channel most savings, regardless of whether they involve deposits, equities or bonds. Banks control about 45 % of retail funds and the broker or adviser that sells the product is usually a bank employee. In Romania or Portugal, these “captive” bank channels distribute 92 % of funds; in Spain 78 %, similar to the shares in Germany and Italy.
The obvious consequence is that banks push high-fee products rather than the low-cost index funds. This is aggravated by rules that are presented as investor protection and which in fact often force retail clients to buy through intermediaries. The same is true for instruments such as French life insurance (assurance-vie) or Germany’s Riester pensions, which place money inside bank-linked vehicles. National lobbies such as GBIC in Berlin, Fédération bancaire française and ABI in Rome block reforms such as the hand-over of supervision to ESMA. Even consumer groups, who want tighter protection, often unintentionally reinforce the same channels.
The question is why the states protect this monopolistic power of the banks. The answer was not obvious at all to me before being in the European Parliament, and I will return to it more carefully next week when I discuss the death of European deposit insurance. But the key idea is that banks’ political importance goes far beyond lobbying. Finance ministers like having large and powerful domestic banks they can pressure in a crisis. This is what is often called “moral suasion”, whereby a national government or central bank governor will put pressure on banks to lend more, or to lend to certain types of clients. National governments therefore defend their banks in ECOFIN and the Council. Each Capital Markets Union package starts with much ambition, but then the clauses that would reduce the banks’ control disappear.
A successful reform must both increase how much credit flows directly from savers to companies, and integrate the fragmented national markets. Both of those objectives directly conflict with the interest of the main winners in the current system: the banks.
Lessons from abroad
The United States once had its own balkanised private equity market. Before 1996 a company raising private capital had to clear “blue sky” laws in every state:
To illustrate, if a startup headquartered in Seattle issued shares to investors located in Washington, California, New York, and Texas, the startup needed to comply with the blue sky laws of these four states. Importantly, it was the issuer—that is, in this example, the startup, not its investors—that needed to comply with each state’s blue sky law. (Ewens and Farre-Mensa, 2020)
Congress did not harmonise these fifty regimes. Instead, the National Securities Markets Improvement Act of 1996 (NSMIA) gave federally defined private offerings an automatic exemption from state law. The results were significant, according to Ewens and Farre-Mensa (2020): late-stage firms became four times likelier to receive out-of-state investors, with an increase in the average round size of 30 %. The market increased from $1.3 bn in 1995 to $33 bn in 2015. The reason NSMIA succeeded is very important for Europe: instead of aiming to harmonise diverse state regulations, it created an alternative, federal path that avoided them.
Europe needs a version of NSMIA: rather than more harmonisation, a European-wide law that allows firms to avoid national regimes. The idea of a “28th regime”, that is, an optional EU-wide code which includes at least corporate, securities and insolvency law and that firms can choose, rather than navigating 27 national rulebooks, has been defended both by Enrico Letta’s April 2024 single-market report and Mario Draghi's 2024 competitiveness report.
An optional regime would avoid many political-economy obstacles, since it allows national supervisors to keep control of domestic offers and banks to continue to sell their own products. Certainly, the dual system might worry large states that fear losing power, and incumbents would still lobby against it, but the US experience suggests that it can work.
In sum, the Commission's current strategy may end up, at best, making bank intermediation more efficient, rather than creating a real alternative. The 28th regime offers the most realistic alternative to mobilise Europe’s savings.
References:
Arampatzi, Alexia-Styliani, Rebecca Christie, Johanne Evrard, Laura Parisi, Clément Rouveyrol, and Fons van Overbeek. "Capital Markets Union: A Deep Dive-Five Measures to Foster a Single Market for Capital." ECB Occasional Paper 2025/369 (2025).
Draghi, Mario. "The Future of European Competitiveness Part A: A competitiveness strategy for Europe." (2024).
Ewens, Michael, and Joan Farre-Mensa. "The deregulation of the private equity markets and the decline in IPOs." The Review of Financial Studies 33, no. 12 (2020): 5463-5509.
Great article. One dimension worth adding is the unintended consequence of recent anti-money laundering regulations. While introduced under the banner of financial integrity, AML rules have further strengthened banks' gatekeeping role, especially in retail and cross-border finance. This has made it harder for fintechs and other non-bank actors to compete, deepening the very dependence on banks that the Capital Markets Union aims to reduce. Might be an interesting next topic.
Thank you for this clear article. It seems like similar to the Single Market (as in your post last week), Member States themselves erect most of the barriers. While at the same time quite hypocritically calling on the EU to remove barriers and 'deepen' the Single Market/Capital Market. Also came across this article just before on this https://www.politico.eu/article/brussels-belgium-europe-single-market-china-european-union-regulations/