The potential acquisition of Commerzbank by UniCredit has sparked significant debate within the European banking community. Corporate mergers and acquisitions (M&As) of this magnitude often trigger concerns about competition, too-big-to-fail risk, and national sovereignty. However, this potential takeover could unlock critical advantages, particularly in driving pan-European market integration. It brings to light the broader challenges and opportunities facing European banks as they navigate in a competitive environment that is increasingly global in nature, based not least on large-scale technical infrastructure. To fully appreciate the significance of such M&As, it’s crucial to explore its strategic context, its implications for Europe's financial architecture, its competitiveness, and its resilience beyond a mere national horizon.
European banks' global struggles
For years, European banks, including Commerzbank and UniCredit, have trailed behind their US counterparts in key performance metrics such as net profit, return on equity (RoE), and market capitalization. One of the main reasons for this disparity is the scale and reach of American financial institutions. US banks, bolstered by superior profitability and capital efficiency, trade at much higher price-to-book ratios than their European peers, reflecting stronger market confidence.
Over the past 15 years, European banks were faced with challenges from the eurozone debt crisis and the financial crisis of 2008. These crises forced many European institutions to consolidate, reduce their global footprint, and focus on domestic markets. As a result, European banks today are smaller and less internationally competitive than their US counterparts. The retreat from international markets, driven by heightened capital requirements and regulatory fines, has left European institutions less able to serve large, globally oriented clients. Moreover, European banks have not benefited from the same level of market consolidation seen in the US. By contrast, even at the European level, banks remain highly fragmented and less innovative. Cross-border banking within the EU has remained relatively limited and stagnant.
The Banking Union: An unfinished business
A critical factor behind Europe’s fragmented banking landscape is the incomplete nature of the European Banking Union, an initiative designed to harmonize banking regulation, supervision and resolution across the eurozone. While important steps have been taken, such as the establishment of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), a key component remains missing: a European Deposit Insurance Scheme (EDIS). Without a unified deposit insurance system at European level, the governmental backstop remains fragmented, leaving the cost of depositor protection to be borne at the national level. Differences in national backstop capabilities coupled with unpredictable exposure risks ultimately create asymmetries that discourage full banking integration.
National banks, focused primarily on domestic markets, have shown limited interest in pushing for the completion of the Banking Union. However, the creation of a larger, pan-European institution could change that dynamic. A cross-border bank would have a vested interest in advocating for full integration, including EDIS, as it could streamline operations, reduce regulatory burdens, and mitigate risks across its multiple markets. In this way, market forces—not just political negotiations— might hopefully drive the completion of the Banking Union, making the European financial sector more resilient, integrated, and competitive on the global stage.
Moreover, a pan-European deposit insurance institution would have strong incentives to reduce concentrated home-country treasury bond holdings, like in Italy, which today are a major reason for moral hazard fears in countries like Germany or Netherlands. Thus, EDIS would bring to light more clearly, and therefore reduce, the default risk inherent in banks’ government debt portfolios.
Cross-border banking acquisition and too-big-to-fail
The proposed acquisition could serve as a catalyst for deeper integration within the European banking sector. In particular, the merged entity could gain exposure to a variety of euro area economies, reducing its reliance on any single market and enhancing its ability to weather country-specific downturns.
Furthermore, pan-European banks would be in a stronger position to manage the risks associated with a potential sovereign debt crisis. By holding government bonds from multiple euro area countries, banks like UniCredit-Commerzbank could help break the "doom loop" between banks and their sovereigns that have troubled Europe in the past. This diversification would contribute to a more stable and resilient European financial system.
Additionally, we emphasize that too-big-to-fail (TBTF) concerns might well be lowered when banks are European rather than national in their activities, because of better diversification and a power shift from national to European supervisory rules. The newly created rules and institutions at the European level, the SSM and the SRM, have greater power and oversight to keep TBTF at bay – being able to implement resolution exercises and capital requirements without regard to so-called national champions, and national interest. Moreover, SSM and SRM generally are supposed to, and are also able, to prevent a bailout from being carried out at the expense of subsidiaries. This should address the experience and concern stemming from the global financial crisis.
Why pan-European bank consolidation matters
The UniCredit-Commerzbank acquisition also points to a broader need for consolidation in the European banking sector. With too many small, regionally focused banks, Europe lacks the robust financial institutions necessary to compete on the global stage. Moreover, its capital markets remain underdeveloped compared to those of the US, leaving Europe more reliant on banks for corporate financing. By consolidating banks into fewer, larger institutions, Europe could create a more resilient banking sector better equipped to withstand economic shocks and serve a wide range of clients—both domestically and internationally (for a recent in-depth analysis on European market integration see SAFE White Paper No. 107).
That said, consolidation efforts in Europe face significant political and regulatory challenges. National governments, protective of their domestic financial institutions, often resist cross-border M&As, fearing loss of control over key assets. This is currently evident in Germany, where concerns about maintaining national influence over Commerzbank have recently emerged.
Conclusion: A path forward for Europe
While the acquisition of Commerzbank by UniCredit remains speculation, its potential impact on the European financial landscape is profound. Such a move could trigger deeper integration within the eurozone’s banking sector, fostering the development of stronger, more competitive institutions capable of withstanding future crises and better able to compete globally. Moreover, creating pan-European financial champions could provide the necessary impetus for completing the long-stalled Banking Union, helping to harmonize regulations, and to protect depositors across borders, without interference by national political considerations.
Finally, one thing is clear: for Europe to remain economically competitive in the 21st century, its banking sector and capital market must evolve. A more integrated and consolidated banking system is not just desirable—it is essential for the future of Europe’s economic wellbeing and its financial stability. A potential Commerzbank acquisition could be the first step toward realizing that vision. Ultimately, the road ahead will not just be shaped by political will, but also by market forces.
Florian Heider is Scientific Director at SAFE.
Elke König is Senior Fellow at the SAFE Policy Center.
Jan Pieter Krahnen is Senior Fellow at the SAFE Policy Center and the Founding Director emeritus of SAFE .
Jonas Schlegel is Financial Economist at SAFE’s Policy Center.
Blog entries represent the authors‘ personal opinion and do not necessarily reflect the views of the Leibniz Institute for Financial Research SAFE or its staff.