European Banking Reform: What Does the EC Plan Mean for Major Banks in Bulgaria?

The European Commission has presented a new plan to deepen the single banking market, which aims to remove national barriers to cross-border banking. This initiative could have serious consequences for the Bulgarian financial sector, as four of the largest banks in the country – UniCredit Bulbank, DSK, UniCredit, and Eurobank – are part of international banking groups.

Currently, the European banking market remains fragmented. Despite common rules, each subsidiary (such as those in Bulgaria) is required to maintain its own capital and liquidity buffers, which cannot be freely transferred to the "parent" in another country. This protects local banks during crises, but at the same time makes resource management less efficient and more expensive.

What is the EC proposing?
The new plan aims for a more flexible distribution of liquid assets and capital among the different countries in which a banking group operates. According to the European Central Bank (ECB), this would allow approximately 230 billion euros of high-quality assets to be transferred more easily in times of liquidity need. The goal is for banking groups to be able to more effectively support strategic sectors such as energy, defense, and technology.

Risks for Bulgaria
Experts from the Institute for Market Economics warn of a potential imbalance. The main question is whether the freer movement of capital will be accompanied by adequate risk sharing. If the integration of resources outpaces the creation of common protective mechanisms, there is a risk that part of the funds from Bulgarian banks could be redirected to other markets, while responsibility during a crisis remains entirely at the national level.

For the reform to be successful and safe for depositors, it must also include a new framework for deposit guarantees. This would prevent a situation where national deposit guarantee funds bear the entire burden in the event of the failure of a cross-border banking group.

Specific legislative proposals from the Commission are expected in 2027, and the final outcome will determine whether Bulgarian clients will have cheaper access to credit or will be exposed to new systemic risks.