Shaping the New Banking Ecosystem

The European banking system is currently experiencing a period of significant transformation, primarily driven by shifting macroeconomic conditions and evolving regulatory pressures. These external forces are accelerating the adoption of sustainability-oriented strategies and digital innovation within the financial sector. In this context, the chapter examines how these macro-level dynamics are reshaping the banking ecosystem, highlighting the key challenges and opportunities facing both banks and regulators. The issue of sustainability is exerting an increasingly significant influence on strategic planning and decision-making processes within the financial sector. This has led institutions to incorporate Environmental, Social, and Governance (ESG) factors into their fundamental operations. Concurrently, digital technologies such as artificial intelligence, machine learning, and blockchain are redefining conventional banking functions by enhancing credit allocation, reducing operational costs, and addressing funding gaps, particularly for small and medium-sized enterprises (SMEs) and start-ups. This chapter explores the ‘twin transitions’ toward sustainability and digitalization, with a particular focus on their combined impact on the transformation of the banking sector. The study identifies the key macroeconomic and regulatory drivers facilitating this shift and illustrates how the convergence of technological innovation and sustainability priorities is revolutionizing the future of financial intermediation in Europe.