European banks too small: the EU Commission launches its competitiveness plan
The long-awaited proposal for joint and several liability for deposits is here. The Capital Markets Union project envisages “a clear path towards a more integrated, efficient and competitive banking sector,” said Maria Luís Albuquerque, Commissioner for Financial Services. “Simplifying the rules and making them more proportionate is important, but it will not be enough. European banks need the right conditions to expand, consolidate and compete globally. This means removing barriers within the single banking market and completing the Banking Union.”
From our correspondent Beda Romano
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BRUSSELS – There was a time, 15 years ago, when European banks were often larger than their American counterparts. Today, the situation has been turned on its head. European banks are smaller and lack the same clout as their main international competitors. With this in mind, the European Commission today, Friday 17 July, presented a report aimed at strengthening the competitiveness of European banks. Among other things, Brussels intends to put forward a new proposal for a joint deposit guarantee scheme.
“The Capital Markets Union project sets out ‘a clear path towards a more integrated, efficient and competitive banking sector’,” said Maria Luís Albuquerque, Commissioner for Financial Affairs. “Simplifying the rules and making them more proportionate is important, but it will not be enough. European banks need the right conditions to expand, consolidate and compete globally. This means removing barriers within the single banking market and completing the Banking Union.”
In essence, the communication just presented does not contain any legislative proposals, but analyses the strengths and weaknesses of the European banking system. The aim is to ensure that the report is discussed with and amongst the Member States. Subsequently, from the first quarter of 2027, the Commission will present specific legislative proposals. Ultimately, the aim is to adapt the banking sector to the progressive integration of the European market, including in the financial sector.
The report contains three chapters. The first is devoted to the need to facilitate cross-border liquidity management amongst European banks. At present, banking groups must meet prudential requirements at both parent company and subsidiary level. This is a sensitive issue because it concerns the balance between the parent company and its foreign subsidiary, particularly where they are located in different countries (the relationship is that between the home and host, to use the English terms).
The EU executive also refers to the presence in banks’ portfolios of any excessive concentrations of government bonds from the same country. In the wake of the financial crisis, the idea of a cap had been proposed by Germany to prevent vicious circles between banking and sovereign debt crises (see Il Sole/24 Ore of 23 April 2016). The idea was rejected at the time. Ms Albuquerque explains: ‘By raising this point, we are not singling out a current risk. The fact remains that diversification is a way of managing risks.’
