THE European Central Bank’s chief supervisor pressed her case for cross-border bank mergers on Friday (Oct 4) as Italy’s UniCredit considered a bid for Germany’s Commerzbank after taking a large stake last month.
Europe’s biggest banks tend to focus on their home markets, making them relatively small and inefficient compared to their US peers, but attempts to merge across borders often run into political hurdles, in part because the bloc’s regulatory framework is incomplete.
“Cross-border activities and mergers can provide opportunities to generate economies of scale and scope,” Claudia Buch, the head of the ECB’s bank supervision arm, told a conference in Vilnius without naming any particular lender.
In granting permission for such mergers, the ECB uses the same criteria as for domestic transactions, and ensures the banks in question have sound risk management practices and strong governance, Buch said.
Commerzbank’s management, employees and the nation’s political establishment have resisted UniCredit’s approach, fearing that foreign control over its second-biggest lender could constrain credit to its corporate sector.
A worry is that banks hold a disproportionately large number of bonds issued by their domestic governments, tying their health to their home nation, which in the case of Unicredit would be a relatively indebted Italy.
One solution to reduce the risk could be to create a European deposit insurance scheme to ease customers’ fears their finances depended on a government with a lower credit rating.
“For consumers, such a scheme would provide reassurance that deposits with domestic banks are protected by the same standards as deposits with non-resident banks,” Buch said.
This, however, does not reduce a bank’s exposure to a particular government, so Bundesbank chief Joachim Nagel has also pressed his case for legislation to lower banks’ exposures to individual sovereigns. REUTERS
