CEE Perspective Weekly Digest - Issue 6

Commission sets out major reform agenda for a more competitive EU banking sector

On 17 July, the European Commission published a Communication on the competitiveness of the EU banking sector, setting out reforms to create a more integrated, proportionate and efficient Single Market for banking. While EU banks are resilient and profitable, the Commission identified three continuing obstacles: fragmented national markets, insufficient consideration of EU specificities when implementing international standards, and excessive regulatory complexity. 

The Commission will propose measures enabling cross-border banking groups to allocate capital and liquidity more efficiently, accompanied by enforceable obligations for parent banks to support subsidiaries, including during periods of stress. It will also seek similar treatment for domestic and cross-border intragroup exposures and act against unjustified national interventions in bank mergers. 

To strengthen host-country safeguards, the Commission will replace its 2015 European Deposit Insurance Scheme proposal with a new initiative simplifying the deposit-insurance framework and addressing potential liquidity shortfalls. Further measures will improve the predictability of group-resolution strategies and strengthen liquidity backstops. 

The wider simplification agenda includes proposals on the Basel output floor and its effects on unrated companies and mortgages, revised treatment of banks’ software investments, and a simpler regime for small and less complex banks. The Commission also plans to simplify MREL and macroprudential requirements and move towards integrated reporting. Banks’ annual reporting costs have been estimated at EUR 11.2 billion, while EBA measures are expected to reduce reporting data points by 50%. Legislative and non-legislative measures are expected in the first quarter of 2027. 

Why it matters for CEE

The Communication is particularly relevant for CEE, where banks remain the principal source of financing and cross-border groups account for a substantial share of lending. Greater flexibility in allocating capital and liquidity could improve efficiency,  but also raises concerns about resources being transferred away from local subsidiaries during periods of stress.

Enforceable parental-support obligations, deposit-insurance reforms and resolution safeguards will therefore be crucial, particularly for CEE countries outside the Banking Union.

The treatment of the output floor and unrated companies is also important given the region’s bank-dependent SMEs, many of which lack external credit ratings. A simpler regime for smaller banks could further reduce disproportionate costs in smaller markets. The central question is whether deeper integration increases financing and competition locally while preserving credible host-country safeguards.

ECB selects 36 payment providers for digital euro pilot

The European Central Bank selected 36 banks and non-bank payment service providers to participate in a 12-month digital euro pilot starting in the second half of 2027. Chosen from more than 50 applicants, the participants include major banks, payment companies and fintech firms representing different business models and markets across the euro area. 

The pilot will test the digital euro’s technical functionality, operational processes and user experience using a beta version that will not have legal-tender status. Participating providers will either distribute beta digital euro accounts and payment services or enable merchants to accept payments. The exercise will test person-to-person and person-to-business transactions online, offline, through e-commerce and at physical points of sale. 

The pilot will involve the ECB and 19 euro-area national central banks, including those of Croatia, Estonia, Latvia, Lithuania, Slovakia and Slovenia. Selected providers include UniCredit, Revolut Bank, Stripe and Nexi. The exercise forms part of the Eurosystem’s preparations for a possible digital euro, although an eventual issuance remains dependent on the adoption of the EU legislative framework. 

Why it matters for CEE

The participation of six euro-area CEE central banks gives the region a direct role in testing how the digital euro could operate in practice. This should allow regional payment habits, banking structures and infrastructure constraints to inform the design before any wider rollout. For CEE payment providers and banks, the pilot also offers an early indication of the technical and operational investments that participation in a digital euro system may require. 

Its significance extends beyond euro-area members: banks and payment providers in non-euro countries such as Poland, Romania, Czechia and Hungary will need to monitor how the digital euro affects cross-border payments, competition and customer expectations. The pilot also links the digital euro’s operational development to the broader debate about strengthening the euro’s global role, as a widely accessible public digital currency could support deeper euro-denominated markets and reinforce Europe’s monetary and financial autonomy. It therefore marks an important shift from legislative and conceptual discussions towards operational testing.

ESAP enters its first implementation phase

ESMA began collecting information and metadata from Officially Appointed Mechanisms and national competent authorities on 10 July, marking the first operational phase of the European Single Access Point (ESAP). ESAP is intended to provide free, centralised access to publicly available financial and sustainability information on EU companies and financial products when the platform opens to the public in July 2027.

ESAP implementation timeline. Source: European Securities and Markets Authority (ESMA), ESAP Open Hearing, 16 February 2024, p. 7.

The first phase covers information disclosed under the Transparency Directive, Prospectus Regulation and Short Selling Regulation. Entities within scope must submit their publicly disclosed information to designated national collection bodies in data-extractable or machine-readable formats, accompanied by standardised metadata. Further categories of information will be incorporated gradually as ESAP is rolled out.

ESAP scope by implementation phase, comparing the European Commission proposal with the final Level 1 text. Source: European Securities and Markets Authority (ESMA), ESAP Open Hearing, 16 February 2024, p. 5. 

Why it matters for CEE

ESAP could help reduce one of the practical disadvantages facing smaller CEE capital markets: the comparatively low visibility and accessibility of information on regional issuers. A central EU platform could make companies easier for cross-border investors to identify and compare, particularly where national disclosure systems, languages and formats currently create barriers. However, the benefits will depend on data quality, timely national implementation and whether investors actively use ESAP. The platform can improve access to information, but it cannot by itself address limited liquidity, small listing pipelines or weak analyst coverage.

Poland stands alone in CEE as ESMA applies FASTER market-capitalisation test

ESMA published the first annual market-capitalisation figures and ratios for EU Member States under the FASTER Directive, covering the 2024 and 2025 reference years. The Directive is intended to make it faster and safer for cross-border investors to obtain relief from excess withholding tax on dividends from publicly traded shares. 

Withholding tax is often deducted at the domestic rate before a dividend reaches a foreign investor, even when a lower rate applies under a tax treaty. Recovering the excess can involve lengthy and fragmented national procedures. FASTER addresses this through a common digital tax-residence certificate and standardised fast-track procedures, including relief directly at source or a quick refund. 

The new ESMA figures determine which Member States must fully comply with these requirements. Countries representing more than 1.5% of total EU market capitalisation for four consecutive years are subject to the Directive’s full withholding-tax relief framework. ESMA found that 12 Member States exceeded the threshold in both 2024 and 2025: France, Germany, the Netherlands, Spain, Sweden, Italy, Ireland, Denmark, Belgium, Finland, Luxembourg and Poland. ESMA will update the figures annually to determine whether the threshold has been met over the required four-year period. 

Source: CEE Perspective illustration based on ESMA, Market capitalisation figures under the FASTER Directive, 10 July 2026; Council Directive (EU) 2025/50. 

Poland was the only CEE Member State exceeding the 1.5% threshold in both years, reflecting the significantly greater scale of its listed-equity market compared with the rest of the region. If it remains above the threshold for four consecutive years, Poland will be required to apply the full FASTER framework. 

Smaller CEE markets falling below the threshold are not automatically excluded from FASTER. However, a Member State below 1.5% may retain an existing comprehensive relief-at-source system instead of implementing all the Directive’s fast-track requirements, provided that system meets the relevant conditions. ESMA’s calculation therefore determines the degree of flexibility available to individual countries. 

More broadly, faster and more predictable withholding-tax relief could make cross-border investment in CEE-listed companies more attractive by reducing administrative costs, delays and double-taxation risks. However, the figures also underline the region’s continuing capital-market depth gap: Poland is the only CEE market large enough currently to cross the EU threshold. 

Lithuanian bank lending increasingly concentrated in real estate

Lithuania’s banking-sector loan portfolio expanded by €1.5 billion, or 3.8%, during the first quarter of 2026, reaching €40.3 billion. Housing lending accounted for the largest part of the increase, while real-estate companies represented 28.5% of corporate lending. Banks remained resilient and earned €282 million during the quarter, although profitability ratios declined as assets expanded. Revolut Holdings Europe’s market share rose to 40.4%, demonstrating the growing importance of cross-border digital banking groups in smaller CEE markets. 

EIB Group explores expanded investment cooperation with Hungary

The EIB Group held discussions with the Hungarian government and MFB Hungarian Development Bank on SME and start-up financing, energy grids, transport, housing and social infrastructure. The parties are also considering cooperation intended to accelerate the use of EU resources and strengthen MFB’s capacity to appraise and implement investment projects. No new financing commitment was announced, but the discussions indicate a potentially broader role for the EIB Group and Hungary’s national development bank in converting reform priorities into bankable projects. 

Estonian bond issuance broadens across the economy

Eesti Pank reported that the Estonian government, banks and non-financial companies all issued bonds in May. Although Estonia’s capital market remains small, issuance across all three sectors provides a modest indication of greater use of market-based financing alongside traditional bank lending. This is relevant to the wider EU effort to deepen national capital markets and diversify corporate and public-sector funding in smaller Member States.

• 20–21 July – Informal meeting of EU research and innovation ministers: Ministers from EU Member States and selected associated countries will meet in Dublin to discuss how research and innovation can strengthen European competitiveness, security and prosperity. The strategic discussion will inform formal Competitiveness Council meetings later in 2026 and is relevant to CEE priorities concerning innovation funding, research capacity and the financing of strategic technologies.

• 20–23 July – European Parliament housing mission to Riga and Helsinki: A delegation from Parliament’s Special Committee on the Housing Crisis will examine Latvian and Finnish approaches to affordable housing and homelessness. Meetings in Riga will include the Ministry of Economics, municipal authorities and development-finance institution ALTUM, making the mission relevant to housing finance, public investment and energy-efficient renovation across CEE.

• 21 July – Hungarian Monetary Council meeting: The Magyar Nemzeti Bank’s Monetary Council will hold its scheduled policy meeting. The decision and accompanying assessment will be closely watched for signals on inflation, the forint and the scope for adjusting monetary conditions amid domestic fiscal pressures and wider geopolitical uncertainty.

• 21 July – Euro-area Bank Lending Survey: The ECB will publish its second-quarter Bank Lending Survey, including banks’ expectations for the third quarter. Markets will focus on changes in credit standards, loan demand and banks’ assessment of risks, with direct relevance for financing conditions in euro-area CEE economies and subsidiaries of euro-area banking groups across the wider region.

•        23 July – ECB monetary-policy decision: The ECB Governing Council will conclude its two-day monetary-policy meeting in Frankfurt, followed by a press conference explaining its decision and assessment of inflation, growth and financial conditions. The outcome will directly affect borrowing costs in euro-area CEE countries and influence exchange rates and monetary-policy conditions across the wider region.

• 23–24 July – Informal meeting of EU environment ministers: Ministers will meet in Dublin for discussions on decarbonisation and competitiveness, Europe’s international environmental partnerships, and circularity and resilience. The meeting is relevant to CEE because climate and industrial-policy decisions increasingly shape energy investment, access to EU financing and the competitiveness of carbon-intensive regional economies.

A big thank you to everyone who joined on Friday for our webinar on Europe’s banking competitiveness and the CEE perspective.

We covered a lot in one hour: the Commission’s new report, regulatory simplification, cross-border banking, Europe’s financing needs, and what this agenda could mean for growth and convergence across Central and Eastern Europe. We could easily have continued the conversation for another hour.

Our sincere thanks to Emiliano Tornese, Sebastian Stodulka, Gonzalo Gasós and Christophe Verboomen for sharing their expertise so openly, and to Andreea Lungu for guiding the discussion so skilfully.

Thank you as well to everyone who attended, followed the conversation and sent in questions.

The recording of the webinar is available on the CEE Perspective website and YouTube channel. Click below!

• ESRB warns that financial-stability risks remain elevated: The ESRB’s 2025 Annual Report found that the EU financial system remained resilient despite geopolitical and economic uncertainty, but highlighted continuing risks from macroeconomic shocks, market volatility, cyber threats and vulnerabilities in non-bank finance. It also outlined the ESRB’s move towards system-wide risk assessment and stress testing.

•    AMLA consults on non-financial-sector risk assessments: AMLA launched a consultation on a harmonised methodology for supervisors to assess money-laundering and terrorism-financing risks among non-financial businesses and professionals. The framework includes simplified reporting for smaller entities and is expected to apply from 31 December 2028.

•       EIOPA seeks narrower application of the AI Act in insurance: EIOPA provided the Commission with additional evidence supporting the exclusion of generalised linear and additive models used in life and health insurance from the AI Act’s high-risk category. It argued that these established, human-supervised statistical models are already covered by insurance, consumer-protection, data-governance and operational-resilience rules, and that high-risk classification would add compliance costs without materially strengthening consumer protection.

•      Commission acts over incomplete transposition of financial-services directives: The Commission issued letters of formal notice to Member States that had not fully notified national measures transposing the Listing Act and EMIR targeted-review directives. Eighteen Member States were identified in relation to the Listing Act and 21 in relation to EMIR. They have two months to respond, complete transposition and notify the Commission of the relevant measures.

•        ECB clarifies expectations for banks’ capital and liquidity assessments: The ECB provided additional guidance on ICAAP and ILAAP submissions, calling on banks to present complete risk inventories, institution-specific stress scenarios and clearly quantified capital-management actions. Its ICAAP Guide sets out seven principles covering governance, capital adequacy, internal capital and risk quantification, which will inform supervisory dialogue with individual institutions.

•       Commission revises derivatives-transparency rules under MiFIR: A new Delegated Regulation implements technical elements of the MiFIR Review by revising transparency requirements for exchange-traded and in-scope OTC derivatives. It introduces static liquidity assessments, new large-transaction thresholds and harmonised deferral periods, while specifying the data to be used by the OTC derivatives consolidated tape.

•        Commission adopts new EMIR 3 clearing thresholds: The Commission adopted a Delegated Regulation revising the clearing-threshold framework under EMIR 3. It establishes aggregate thresholds for OTC credit and interest-rate derivatives and separate thresholds for uncleared positions across credit, equity, interest-rate, foreign-exchange, commodity and emission-allowance derivatives. ESMA will assess the thresholds at least annually.