This share prices have a 15 minute delay and are shown in the local time of the market in which the quote is displayed.
Two different realities: profitability and capital in US and EU banks
Oliver Wyman released a report commissioned by the European Banking Federation with the aim to provides a quantitative and independent assessment of the regulatory and supervisory costs for EU (European Union) banks compared to US banks. The conclusions could help for constructive and forward-looking dialogue between banks and EU authorities on the direction of future regulatory and supervisory measures which have a direct impact on the banking sector’s ability to support the real economy. According to the report a review of current capital requirements and supervisory processes could, in a hypothetical scenario, provide capacity for €4-4.5 trillion additional bank lending for EU banks to support the financing of the green and digital transitions.
Main takeaways of the report:
- Lower profitability of European banks vs US banks due to structural factors: The RoE (return on equity) of EU banking sector today (6.7% on av. In 2021) is not earning its cost of capital while US competitors have returned to pre-crisis profitability levels (11% in 2021). According to the report, this has been driven, among other reasons, by an economic environment of comparably poor growth in the Eurozone, different fiscal and monetary conditions, high fragmentation, in a context of rising minimum cost of doing business, and a long period of negative interest rates that depressed banks’ earnings in a period where they had to strengthen capital buffers. The report highlights how the incomplete Banking & Capital Market Union is a structural obstacle to bank consolidation across the Eurozone, preventing banks from realizing synergies across markets.
- Lower profitability of European banks also due to differences in how rules effectively work and how they are implemented. The report concludes that EU banks face an incremental regulatory-induced cost compared to US peers that could explain 0.8-1.0 percentage points (p.p) of the ROE gap. This higher regulatory cost is explained mainly by two facts: 1) More complex EU’s approach to determine capital requirements, which gives regulators wider discretion and might be perceived as being less transparent. 2) EU banks face almost twice as high contributions to deposit and resolution funds compared to US peers, while requirements on bail-in-able capacity are 3.9 p.p higher than in the US.
According to the report policymakers should redouble their efforts to complete the banking and capital markets union and additionally, supervisors should place greater emphasis on streamlining and making more efficient key processes to ensure that EU banks don´t have a disadvantage on the global playing field.
Filter results
According to the OECD. SMEs and start-ups that grow rapidly contribute significantly to job creation, economic growth and competitiveness. Indeed, SMEs that grow by one-third over a three-year period, contribute about as much to job creation as large firms.
According to @McKinsey, banks must prepare for a new growth curve. Strategic precision —the ability to combine technology, capital discipline, and deep customer insight— will distinguish the leaders from the laggards.
According to Kristalina Georgeva IMF Managing Director, lifting growth requires three things: one, regulatory housecleaning to unleash private enterprise; two, deeper regional integration; and three, preparedness to harness AI.
According to The European House – Ambrosetti, the European Union has an opportunity to boost competitiveness and growth by simplifying regulatory and supervisory frameworks, particularly in the areas of sustainability and the financial sector.
According to Ramón Casilda Béjar, Spain, in today’s complex geopolitical landscape, has the opportunity to strengthen its role as a bridge and connecting country between Ibero-America and the European Union, revitalizing investment flows in both directions.
According to @ECB, in moments of acute stress, the public often turns to physical currency as a reliable store of value and a resilient means of payment, underscoring the crucial role it plays above and beyond everyday transactional convenience
According to Juan S. Mora-Sanguinetti, in Spain a 10% increase in regulatory volume leads to a 0.5% drop in employment in companies with fewer than 10 employees.
According to Hélène Rey “In a world where stablecoins, particularly those pegged to the dollar, become an important global payment tool, we must brace ourselves for substantial consequences”.
@judith_arnal proposes reforms for the EU to advance regulatory simplification, starting with consensus on its meaning, with competitiveness as a pillar, plus coordination mechanisms and a governance rethink.
According to @iee_org, Spain has one of the most demanding tax environments for businesses within the European and international context, which may have significant implications for competitiveness, foreign investment attraction, and business expansion.
According to Christine Lagarde for the euro to gain in status, Europe must take decisive steps by completing the single market, reducing regulatory burdens and building a robust capital markets union.
According to the Bank of Spain, in a context of strong growth in transactions and prices, the conditions under which new mortgage loans are granted currently show no signs of easing in lending standards.