European banks are more concerned about being "too small to survive" than "too big to fail" due to the challenges they face from holding more capital and increased competition and costs, the boss of Swiss bank UBS said today.

Lawmakers and regulators are trying to ensure banks are not so big and interconnected that they would need rescuing with taxpayer cash if they hit trouble.

After several banks were bailed out in the 2007-09 financial crisis, solving "too big to fail" has been a priority of regulators in the United States and Europe.

"I do not think there is an issue in Europe (with) ... too big to fail, actually we should introduce too small to survive. That's the real issue," UBS chief executive Sergio Ermotti said.

“We have a safer and stronger banking system than we had two years ago ... but eventually, we have found 1,100 fewer financial institutions, 250,000 fewer jobs (in Europe). I do not consider that good,” he said at a banking conference in Paris.

Mr Ermotti said tougher regulations and industry reforms had been necessary, but the threat of adding more rules before previous ones had been implemented was a challenge and “clarity and stability of reforms” was now needed.

“The banking system has been responsible for many problems we had in the last few years, for sure, we abused the liberal regulatory framework and did not exercise good judgment.”

But he said banks now face a challenging operating environment in Europe.

“People are expecting banks to go out and stimulate the economy, which has many weak fundamentals, and at the same time protect depositors ... not easy,” he said.

One of the European Union’s top officials said regulators were trying to ensure the mistakes of the past were not repeated once better times return.

"We should provide future generations with a better toolkit," Jonathan Faull, director general of internal market and services for the European Commission, said at the same conference. ( Reuters)