Union bancaire: François Villeroy de Galhau advocates for pan-European giants
The governor of the Bank of France has argued, during the Paris Finance Forum, in favor of a banking union to promote cross-border mergers to increase the size of banks facing massive investments in new technologies.
Following his desire to revive the Capital Markets Union, the governor of the Bank of France, François Villeroy de Galhau, is advocating for a Banking Union, an unfinished European project. “Europe has long left financial power to others; it has long neglected the asset that banks and competitive financial institutions are,” the governor stated on Tuesday during the Paris Finance Forum. Europe must mobilize the “unknown resource” for its companies, the excess savings, which amounts to a net financing capacity of over 300 billion euros. This is the goal of the single capital market. However, according to the central banker, Europe must resume the Banking Union project, already initiated ten years ago with the banking supervision union and the establishment of the Single Supervisory Mechanism and Resolution, endowed with an 80 billion euro guarantee fund. Competitiveness Factor But this is not enough. There needs to be more harmonization among European banking systems. The excessive fragmentation of banking systems is, according to the banker, a barrier “to the emergence of pan-European banks.” “Size is an objective factor of competitiveness, especially because it allows banks to absorb the cost of essential investments” in new technologies. “European authorities must tirelessly strengthen their fight against too many short-sighted national divergences and national obstacles,” the governor believes. The recent failure to create a pan-European bank card scheme, as part of the EPI project, is an illustration of this. The governor had already called for stronger consolidation of the banking sector in Europe during the presentation at the end of May of the annual report of the ACPR, the French banking and insurance supervisor. These statements had a particular resonance less than fifteen days after the President of the Republic, Emmanuel Macron, in response to a question from Bloomberg TV, expressed openness to cross-border mergers in the euro area. The American journalist had then mentioned the fictitious case of a merger between the Spanish bank Santander, which was too quickly interpreted as a scenario that would have the approval of the Elysee Palace. Something the executive had to deny. Fusion or not fusion A few days later, the CEO of Société Générale, Slawomir Krupa, estimated at the shareholders’ meeting that the probability of a major cross-border operation in Europe was “zero.” He was responding to market speculation about a possible takeover bid for Société Générale, but also reflecting the views of a large majority of major bankers, namely that cross-border mergers were considered at best complicated, at worst counterproductive. “In the wholesale banking market, consolidation has already taken place, with one or two European banks dominating the market alongside American banks,” notes a senior banker. Indeed, many large European banks have exited the European wholesale and investment banking market, such as Credit Suisse or Deutsche Bank. Few synergies in retail banking In retail banking, the observation is clear: the synergies to be expected from a cross-border merger are weak. This is also the conclusion reached by BNP Paribas, which has not succeeded in creating common platforms for its retail banks in France, Belgium, or Italy. Banking products, such as savings products or mortgage loans, are still too different, as are customer behaviors. Finally, prudential rules have become so strict that growing costs more and more in equity capital. This is paradoxical given that regulators are calling for greater consolidation of the European banking sector. In short, the banking union, like the capital union, is not coming anytime soon. Especially with a European Parliament more focused on national interests.