Reform of Europe's banks should be boosted by a pan-European banking system and more cross-border mergers within the European Union, Lorenzo Bini Smaghi, chairman of Société Générale, told CNBC.
Bini Smaghi, a member of the European Central Bank's governing board during the height of global financial crisis of June 2005-November 2011, told CNBC at the Ambrosetti Forum in Italy: "We need a European banking system."
Italian banks have been thrust into the spotlight this year over concerns about their solvency. Banca Monte dei Paschi di Siena (BMPS), the Italian bank which is the world's oldest, had secured a dramatic 5 billion euros ($5.6 billion) rescue package in July, after months of concerns about its portfolio of bad loans sent its share price plunging.
The Italian banking sector is stuck in a vicious, ever-decreasing circle with the economy. Banks can't lend to fuel the economy, the economy gets worse, and the chance of banks getting anything back from their bad debts shrinks even further.