European Banking Sector Consolidation Risks: Navigating Corporate Governance and Antitrust Challenges in Cross-Border M&A

The European banking sector remains a focal point for cross-border mergers and acquisitions (M&A), driven by the need for scale, technological integration, and regulatory compliance. However, consolidation efforts are increasingly constrained by evolving corporate governance standards and antitrust scrutiny. Recent regulatory developments under the Capital Requirements Directive VI (CRD VI) and the European Banking Authority's (EBA) strategic priorities underscore the growing complexity of navigating these challenges.

Regulatory Frameworks and Emerging Risks

The EBA's 2024 Annual Report highlights its dual focus on Basel III implementation and digital resilience frameworks like the Digital Operational Resilience Act (DORA) and Markets in Crypto-Assets Regulation (MiCAR) EBA releases 2024 Annual Report – Key developments^[2]. A critical area of regulatory attention is the oversight of third country entities (TCUs) providing banking services to EU financial sector entities (FSEs). In July 2025, the EBA published a report assessing whether TCUs should be exempted from establishing EU branches for core banking services. While cash exposures to TCUs are generally low, the report identified concentrated risks in Ireland and Luxembourg EBA publishes report on exemption of third country entities from the requirement to set up a branch for the provision of banking services to EU financial sector entities^[1]. Notably, the EBA declined to recommend expanded exemptions under CRD VI, citing insufficient data and uncertainty about systemic impacts EBA publishes report on exemption of third country entities from the requirement to set up a branch for the provision of banking services to EU financial sector entities^[1]. This cautious stance signals heightened regulatory scrutiny for cross-border deals involving non-EU entities.

Corporate Governance and Suitability Assessments

Corporate governance has emerged as a pivotal factor in M&A approvals. The EBA's guidelines on suitability assessments for management bodies and qualifying holdings under MiCAR emphasize transparency and accountability Regulation Round Up - Regulatory & Compliance^[3]. These requirements complicate cross-border transactions by imposing stricter due diligence on board compositions and shareholder structures. For instance, acquirers must now demonstrate that management teams meet “fitness and propriety” criteria, a standard that could delay or derail deals lacking alignment with EU governance norms.

Antitrust Dynamics and Market Concentration

Antitrust resistance in cross-border M&A is further amplified by the EBA's focus on market concentration risks. The authority's reluctance to expand TCU exemptions under CRD VI reflects concerns about preserving competitive dynamics within the single market. While no high-profile M&A cases have faced public antitrust challenges in 2024–2025, the EBA's emphasis on data-driven decision-making suggests that future deals may face rigorous stress-testing. For example, mergers in Ireland or Luxembourg—where TCU exposures are concentrated—could trigger investigations into market dominance or reduced consumer choice.

Investment Implications

For investors, these regulatory shifts imply elevated costs and prolonged timelines for cross-border banking M&A. The EBA's prioritization of digital resilience and governance transparency may favor acquirers with robust compliance frameworks but deter opportunistic consolidation. Additionally, the lack of expanded TCU exemptions could incentivize EU-based banks to pursue domestic or regional partnerships rather than transnational deals.

Conclusion

The European banking sector's consolidation trajectory is inextricably linked to regulatory evolution. While the EBA's 2024–2025 initiatives under CRD VI and MiCAR aim to enhance stability, they also introduce friction into cross-border M&A. Investors must weigh these regulatory headwinds against the strategic benefits of consolidation, recognizing that governance and antitrust considerations will remain central to deal viability.