BRUSSELS – There was a time, 15 years ago, when European banks were often larger than American ones. Today the situation has reversed. European institutions are smaller and do not have the same impact as the main international competitors. In this perspective, the European Commission presented today, Friday, July 17, a report aimed at strengthening the competitiveness of European banks. Among other things, Brussels intends to present a new proposal for joint deposit insurance.
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The capital markets union project foresees “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 obstacles in the single banking market and completing the Banking Union.”
In essence, the communication just presented does not contain legislative proposals but analyzes the strengths and weaknesses of the European banking system. The goal is to ensure that the report is discussed with and among member countries. Subsequently, starting from the first quarter of 2027, the Commission will present specific legislative proposals. Ultimately, the goal is to adapt banks to the progressive integration of the European market also in the financial field.
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There are three chapters contained in the report. The first is dedicated to the need to facilitate cross-border liquidity management among European banks. Currently, banking groups must meet prudential requirements both at the parent company and subsidiary levels. The issue is delicate because it touches on the balance between parent company and foreign branch, especially if located in different countries (the relationship is that between home and host to use the English expression).
The community executive also cites the presence in bank portfolios of any excessive concentrations of government bonds from the same country. Following the financial crisis, the idea of a cap was proposed by Germany to avoid vicious circles between banking crisis and sovereign crisis (see Il Sole/24 Ore of April 23, 2016). The idea was then rejected. Albuquerque explains: “By mentioning the argument we are not pointing the finger at a current risk. It remains that diversification is a way to manage risks.”
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