The European Central Bank believes that banking consolidation across national borders would strengthen sustainability and risk sharing in the sector.
The European Central Bank (ECB) considers that the creation of large European banks is desirable for the sustainability of the banking system. This position was expressed on Friday by Philip Lane, member of the management board and chief economist of the ECB, during a conference organized by Natixis CIB in Paris.
An overly localized banking system considered risky
“Having a banking system that is too localized and, in turn, too intertwined with its national market is not a good recipe,” said Philip Lane. “I think, from a macroeconomic point of view, it is very important to have the risk sharing that cross-border banking provides. This can happen through the holding of equity, through financing, through common technology.”
Philip Lane was speaking as Italy’s second-largest bank UniCredit plans to buy Germany’s Commerzbank, its takeover bid launched in early May ending Tuesday evening. The operation is considered hostile by Berlin, a 12% shareholder in Commerzbank, as well as by the bank’s management and employees, who defend its independence. In the longer term, UniCredit has its sights set on the merger of Commerzbank and the German HypoVereinsbank, which it already owns.
Pooling of costs and the rise of online banks
Failing to carry out merger operations, banks can find other ways to reduce their costs and risks, believes Philip Lane. In the sector, “fixed costs have increased” and “putting in place a secure cybersecurity system is expensive,” he emphasizes. Charges that smaller establishments can mitigate by using “very good service providers who do it for many banks”. Ultimately, he anticipates, “we will have a relatively small number of gigantic banks in Europe”.
As for the emergence of purely digital players, which is shaking up the traditional banking model, it does not “change [pas] the fundamentals” in the eyes of the chief economist. The historic banks must certainly “react”, which they do by offering competing products, but Philip Lane sees this as a healthy development: “there is clearly a role for purely online banks”, with “a different economic model”. However, he recalls that any player providing financial services, “fintech or otherwise”, must comply with the same regulations, “both in terms of liquidity, solvency, but also customer service”.
