Major banks in Europe have called on the European Union (EU) to relax regulations on cross-border banking services, citing a loss of competitiveness compared to U.S. banks due to large amounts of capital being tied up by regulations.
On the 1st (local time), according to the Financial Times (FT), the Association for Financial Markets in Europe (AFME) stated in a report that the European Central Bank (ECB) and regulatory authorities need to lower cross-border barriers to enhance the EU's financial stability and growth outlook. Adam Pankas, AFME's representative, noted that "banks operating cross-border within the union are suffering significantly from revenue declines due to a fragmented approach causing capital and liquidity to be locked up," and emphasized that "simplifying regulations could lead to a groundbreaking change in terms of economic efficiency."
AFME pointed out in the report that €225 billion (approximately 366 trillion won) in capital and €250 billion (approximately 407 trillion won) in liquidity are tied up by cross-border regulations in the Eurozone. This has delayed mergers and acquisitions (M&A) between banks, effectively stalling large transactions.
In fact, the average time for M&A between EU banks over the past three years has increased to 285 days, approximately 100 days longer than a decade ago. Compared to the United States (219 days), the United Kingdom (173 days), and Switzerland (85 days), this is relatively long, contrasting with recent trends in the U.S. and U.K. of loosening financial industry regulations. AFME indicated that "cumbersome approval processes and the involvement of multiple authorities have continuously reduced cross-border mergers over the past 20 years," according to financial information provider Dealogic, which noted that while the number of mergers among Eurozone banks slightly increased last year, it still remains close to a 30-year low.
Structural limitations of banks are also highlighted. It has been pointed out that once total assets exceed €451 billion, administrative costs rise faster than the asset growth rate, resulting in a negative effect that eliminates economies of scale. AFME analyzed that "the absence of a complete banking union has led to limits on economies of scale, making it difficult for European banks to catch up with the asset size and revenue of large U.S. banks." Additionally, there are criticisms that Europe's own capital and minimum requirements for eligible liabilities (MREL) regulations are much stricter than those in the U.S. or U.K., increasing the burden on banks.
Moreover, European banks have consistently expressed dissatisfaction over the delay in the introduction of the EU single deposit insurance system. The EU single deposit insurance system is a framework for raising additional funds at the EU level to complement national deposit protection schemes. However, Pankas emphasized that "even if the deposit insurance system is not implemented immediately, there is much room for improving the operational mechanics of the banking union."
An executive at a large bank stated in an interview with FT that "if funds cannot be moved freely, there is no point in expanding cross-border business," and added that "dissatisfaction in the banking industry could increase depending on the speed and direction of the regulatory authorities' response."