The ECB has been keen to promote consolidation of Europe’s highly-fragmented banking sector.Credit: Bloomberg
The ECB and those, like Draghi, fully committed to the “European Project” believe that pan-European banks would create greater diversity, and therefore reduced concentration risk, while also building the scale and bigger pools of capital that would enable the EU to compete with its international rivals.
Bigger and more diverse European banks might also help larger financial markets to develop, reducing Europe’s over-reliance on banks for capital. Other economies, most notably the US, source far more of their private capital – particularly for perceived higher-risk investments, like technology – from financial markets.
An oft-asked question in Europe is why is the market capitalisation of JPMorgan Chase, America’s largest bank, roughly equivalent to the combined market caps of Europe’s 10 largest banks?
It was a question asked by Draghi, who bemoaned European banks’ lack of scale and poor profitability relative to their US counterpart in his report. Scale, diversification and the greater profitability that greater efficiency could generate enables greater risk-taking.
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It’s the parochialism, risk aversion and the politicians’ fixation with national champions, particularly after the traumas of the eurozone crisis post-2008, that has inhibited European bank mergers and acquisitions activity.
UniCredit’s tilt at Commerzbank is seen as a big moment for European banking more broadly. If it can acquire Commerzbank, or at least merge HVB into it and have effective control, it could open the doors for a flurry of European banking consolidations.
If it fails because of the domestic opposition, the banking sector will remain fragmented, all but a handful of banks within Europe sub-scale and low-returning and the vision that Draghi and others have of a more integrated union, in which a banking union is a foundational piece, will be much harder to realise.
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Publish date : 2024-09-29 19:00:00
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