AFME reveals that European Union banking industry "trapped capital" reaches 225 billion euros, with European bank stocks facing significant resistance despite their strong momentum.

According to a industry lobbying group, the European Union's failure to break down financial barriers between member state banking markets could result in around 225 billion euros (approximately 262.5 billion US dollars) of capital being trapped for large lending institutions, a significant portion of which could have been utilized to support other financial activities. This latest development will undoubtedly have a significant negative impact on the largest wave of stock price rebounds for European banks in 16 years, and the strong upward trend seen since April in European bank stocks may face significant resistance. The Association for Financial Markets in Europe (AFME) stated in a latest report released on Tuesday that European large commercial banks with assets exceeding 500 billion euros have consistently higher capital ratios at the level of their cross-border subsidiaries in the EU compared to the consolidated level. This means that the capital ratios of these banks' cross-border subsidiaries have "consistently higher" ratios than their consolidated capital ratios. Following the 2008 financial crisis, the European banking market split along national borders as regulatory agencies in EU member states sought to prioritize the protection of domestic depositors when foreign-registered banks ran into trouble. Measures were later taken by policymakers to create what is known as banking union, but large lending institutions have consistently stated that this "fragmented" EU banking union and the firewalls still in place are burdensome, particularly with regards to cross-border mergers and acquisitions. AFME stated in the report, "the persistent trust deficit between different national regulatory authorities" impedes the change of EU banking industry benchmark rules, thereby failing to allow for what is known as capital mobility exemption. The lobbying group argues that regulatory authorities should acknowledge the progress made in dealing with failed or bankrupt banks and consolidating the assets of lending institutions over the past decade. AFME mentioned that the equity and bond requirements imposed on commercial banks by the EU are higher than those of their counterparts in the US and UK, and additionally, the associated extra financing costs pose a severe competitive disadvantage. Some European banks have shown increased interest in acquiring competitors or specific businesses recently. However, AFME noted that the relevant approvals among major EU member states are "cumbersome." AFME's calculation of the "trapped capital" is based on previous estimates by the European Central Bank. The ECB's previous estimates showed that approximately 250 billion euros in liquid assets were prevented from freely flowing within the EU banking union due to local regulatory rules. As AFME's latest research report is released, European bank stocks are currently experiencing the strongest bull market trajectory in over a decade. However, the strongest rebound for European bank stocks in 16 years is facing a series of significant challenges, including the approximately 225 billion euros (approximately 262.5 billion US dollars) of capital being trapped as estimated by AFME, political turmoil in France, renewed calls for windfall taxes in the UK, and the possibility of additional taxes being imposed in Italy. As of 2025, buoyed by impressive earnings performance and solid investment returns, European bank indices have soared by 41%, easily outpacing other stock market sectors in the region. According to data from Bloomberg Intelligence, MSCI Europe Financials Index components have shown a significant earnings performance in the second quarter, with earnings per share rising by 15%, far exceeding the original market forecast of just 2% growth. Optimistic strategists on Wall Street generally believe that despite the strong upward trend of European bank stocks for three consecutive years, this rebound is far from overheated, and the European banking sector index is still approximately 45% lower than its peak before the global financial crisis in 2007.