European banks want simpler rules as region's annual investment gap hits €1.4 trillion

MADRID/LONDON, June 9 (Reuters) - Europe faces a widening €1.4 trillion ($1.62 trillion) annual investment gap that risks holding back its economic objectives including energy transition, the European Banking Federation said on Tuesday, urging simpler rules to help banks finance growth.

The figure was revised up from earlier estimates of €800 billion in 2024 and €1.2 trillion in 2025, and based on analysis by consultancy Oliver Wyman commissioned by the European Banking Federation (EBF).

The EBF says the investment gap reflects rising funding needs in areas such as energy, defence, digitalisation and industrial capacity. In Europe, banks provide around 65% of financing to the real economy, far more than in the U.S.

Europe's banks say the regulatory framework is constraining lending and they are pushing for changes. A European Commission assessment of banking sector competitiveness is expected in July, with legislative proposals likely to follow in 2027.

France and Germany have urged the Commission to bring forward an ambitious "financial services simplification package" to make EU rules easier to navigate and less burdensome.

Regulators have already signalled some movement. In April, the European Banking Authority (EBA) outlined measures to simplify supervisory reporting and reduce the burden on banks.

In December, the European Central Bank also proposed streamlining rules, though without easing overall capital requirements, prompting criticism from lenders.

Banks have long complained that supervision has become onerous. Some countries, particularly the United States, are now pushing to cut regulation and soften capital rules to boost growth.

The EBF called for targeted simplification, improving coordination among regulators while preserving post-crisis safeguards.

With an additional €150 billion, banks could target around 20% of Europe's additional financing needs, the EBF said. A 1% reduction in CET1 capital requirements would release €95 billion, it added.

It also urged faster progress on strengthening capital markets and completing the banking union, including a common deposit insurance scheme.

($1 = 0.8668 euros)

(Reporting by Jesús Aguado and Phoebe Seers; editing by Susan Fenton)