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The writer is executive chair of Banco Santander and chair of the Institute of International Finance

Last week, EU finance ministers unanimously urged the European Commission to simplify and streamline the bloc’s financial regulatory framework. For the first time, all 27 member states have acknowledged an uncomfortable truth too long ignored: Europe’s regulatory system is too heavy, too complex and too slow for the world we face.

But a deeper truth sits beneath it: Europe’s biggest financial-stability risk is no longer banks — it is low growth itself. Stronger growth is essential to remaining secure, prosperous and strategically autonomous.

Others have recognised this and are moving — fast. The US has begun scaling back major elements of its proposed “Basel III endgame”, explicitly easing capital requirements to support lending and investment. The UK has followed suit, with the Bank of England revising capital demands downward to free up lending capacity.

The message from Washington and London is unmistakable: if you want growth, you cannot keep tightening the screws on those institutions that finance the real economy. Strong growth and strong stability are not opposing goals — they reinforce each other.

Europe has recognised the problem but not yet acted with urgency. It is more than a year since Mario Draghi’s landmark report on European competitiveness, yet its most important recommendations — particularly those on regulatory simplification and investment capacity — remain largely unimplemented.

This matters because Europe’s economy runs on bank lending, which provides around 80 per cent of debt funding for large businesses. When that lending is constrained, the impact is systemic. Supervisory discretionary buffers imposed on top of existing requirements are estimated to reduce financing capacity by between €2.7tn and €4.1tn — equivalent to 100mn SME loans, 20mn mortgages or the entire investment needed for Europe’s green, digital and defence transitions combined.

This framework is not protecting Europe — it is holding it back. Low growth, if left unaddressed, becomes a source of financial instability in its own right. If the EU is serious about competitiveness — and about long-term security — Brussels must prioritise three reforms.

First: stop the regulatory pile-on, especially where it drives unnecessary capital burdens. The issue is not simply the number of regulations but the proliferation of overlapping, duplicative or excessively conservative requirements at so-called levels 2 and 3, as well as supervisory expectations that introduce de facto capital add-ons outside the legislative process. Freezing this accumulation and eliminating overlaps in the capital stack is the essential first step to restoring clarity and predictability. The fact that the ECB has now acknowledged this issue is welcome.

Second: modernise the rulemaking process. The EU needs independent cost-benefit analyses, periodic reviews and phased implementation windows for new rules. A shift towards more principles-based regulation would give boards and supervisors the flexibility to focus on actual risks rather than box-ticking.

Third: reform the supervisory model itself. Europe needs supervisors with a clear secondary mandate for growth and competitiveness, a reform that the UK has recently introduced. Policies cannot be designed to pursue only one objective. If fiscal policy were focused exclusively on revenue collection, for instance, tax rates would quickly become economically unsustainable and socially undesirable.

None of this means compromising stability. Smarter regulation is not about weakening defences. It is about ensuring that Europe’s rule book supports its wider goals: stronger growth, higher investment, greater competitiveness and genuine strategic autonomy.

Europe has world-class banks and companies that have a strong capacity for innovation. It is the framework around them that is sub-optimal.

Reform is not only in Europe’s interest. As JPMorgan chief executive Jamie Dimon recently noted, Europe’s weakness is a global concern. The US has a profound interest in a strong Europe; we remain each other’s largest trading partners and closest allies. A more dynamic, innovative and competitive European economy contributes directly to global stability.

Europe can seize this moment to cut unnecessary complexity, address excessive capital burdens and unlock the financing needed for long-term prosperity. Or it can continue managing today’s risks with yesterday’s tools — at the cost of tomorrow’s competitiveness.