Fragmented EU Banking Market Hinders Ambitions, EBA Chair Warns
By Jakob Van Calster
Challenges and Implications of a Fragmented European Banking Market
Sept 24 (Reuters) - Europe's fragmented banking market is preventing lenders from achieving the scale needed to finance the continent's digital, economic-security and defence ambitions, the chair of the European Banking Authority told Reuters.
Current State of European Banks
While European banks remain highly capitalised and continue to post strong profits, they are constrained by a single market that is "not as single as it should be", François-Louis Michaud said in an interview on Wednesday.
Need for Financing Transformations
"We know that Europe needs to finance all those transformations: digital, environment, demographic, economic security and defence," Michaud said. "It's existential for the future of Europe."
European Commission Initiatives
The European Commission is pushing a competitiveness agenda aimed at mobilising investment for digitalisation, defence and economic security, while exploring ways to make cross-border banking easier and deepen the bloc's single market.
Barriers to Integration
Expensive National Differences
EXPENSIVE NATIONAL DIFFERENCES
Michaud said mergers were not the only solution and that, from the EBA's perspective, greater cross-border lending and financial integration were equally important.
Regulatory and Structural Obstacles
Differences in tax, insolvency and consumer-protection regimes continue to make it expensive for banks to offer standardised products across the bloc and achieve economies of scale, he added.
As a result, wholesale banking by European financial institutions has dwindled over time, with a growing share of funding provided by non-bank financial institutions, private-credit firms and players outside the bloc.
"Again, it's a question of scale to some extent, banks need to be able to scale up," Michaud said.
Efforts to Simplify Regulations
He said the EBA aimed to reduce unnecessary red tape, allowing banks and supervisors to focus on the most significant risks rather than "spend too much time and money just for compliance purposes per se".
With the Basel banking reforms now implemented and US regulators moving to ease requirements for some banks, Michaud said momentum was building behind efforts to simplify European rules, including the capital regime, while preserving resilience.
Competition with US Banks
Strengthening European banks is also necessary to compete with US rivals, he added, noting that many American lenders had substantial capital available for expansion and that some were looking beyond their traditional business lines and venturing into new markets.
(Reporting by Jakob Van Calster and Mateusz Rabiega; Editing by Matt Scuffham)
