EU banks must be bigger, have deeper capital market, to compete with US, say top officials

European banks must become larger and have a more robust capital market if they wish to compete with their US counterparts, according to senior European officials. The European Union is striving to enhance its standing in the rapidly evolving global economy, as discussed by EU finance ministers and central bank governors in Dublin. A European Commission report recommended reducing government intervention in bank mergers and eliminating obstacles to cross-border banking within the bloc.

European Central Bank Vice-President Boris Vujcic stated that while EU banks perform well in terms of liquidity, capitalisation, profitability, and efficiency, they fall short in trading and post-trading activities compared to US banks. Scale is crucial in this regard, he explained. A notable instance of political interference in bank mergers occurred in June when Germany rejected UniCredit's acquisition proposal for Commerzbank. This highlights the challenges of executing cross-border banking deals in Europe.

Eurozone finance ministers chair Kyriakos Pierrakakis emphasized the need for greater integration and further cross-border consolidation to enable European banks to invest, innovate, and compete globally. He pointed out that the largest US banks allocate more than two-and-a-half times the amount in information technology relative to their assets compared to European lenders, a difference that is significant in areas such as artificial intelligence, digital payments, and cybersecurity.

Vujcic also cautioned against lowering capital requirements, as this may not increase lending and could instead encourage share buybacks. He advocated for completing the banking union and savings and investments union to establish a truly integrated financial market. The European financial market remains highly fragmented, with differing tax regimes, rules, and legal systems that increase costs and decrease efficiency.