ECB bank supervisor Enria criticises ‘national champion’ mergers
Potential collision course with Berlin over plans for Deutsche-Commerzbank tie-up
The eurozone’s top financial supervisor has criticised the idea of creating national or European champions to compete with global rivals, potentially putting the European Central Bank on a collision course with Berlin’s efforts to protect its banking industry via a merger of Germany’s two biggest lenders.
In his first interview since becoming chair of the ECB’s Single Supervisory Mechanism (SSM), Andrea Enria said: “I do not particularly like the idea of national champions, of European champions; especially when you are a supervisor, you should not promote any particular structural outcome.”
Deutsche Bank and Commerzbank have begun talks on a possible merger after the government in Berlin said it would support the restructuring needed to make the tie-up a success.
Mr Enria declined to comment specifically on Deutsche and Commerzbank’s plans in line with SSM policy not to comment on individual lenders. Mr Enria, who was speaking before the two banks confirmed merger talks, did not say how the supervisor would treat the deal.
He made clear that in all instances, the SSM would ignore any political motivations behind proposed tie-ups.
“What is relevant for us is the deal which is put forward to us, and the only things we care about are the sustainability of the project,” he told the Financial Times last Wednesday. “The ability to deliver a bank which has a strong business, a good capital position, is able to generate profits, and to respect in the medium term the standard requirements, prudential requirements, that is what we look at.”
Berlin has become more aggressive in protecting its largest businesses from foreign pressure. Olaf Scholz, the German finance minister, has been an important driver in encouraging Commerzbank, which is 15 per cent state-owned, to hold talks with Deutsche.
Peter Altmaier, Germany’s economy minister, has also proposed an industrial strategy to challenge China’s dominance.
However, European officials have signalled that they are reluctant to drop their pro-competition stance.
The opposition of the SSM to create “champions” mirrors that of Margrethe Vestager, the EU competitions commissioner, who this year blocked a proposed Franco-German merger between train manufacturers Siemens and Alstom.
Mr Enria took over the supervisor’s role, set up in 2014 in the aftermath of the region’s sovereign debt crisis, in January.
Eurozone banks are in a less critical state than during the financial crisis but are struggling to keep up with their US and Asian investment banking rivals in terms of market capitalisation. While Mr Enria said it was “a problem” that European banks were not seen as “attractive investment propositions”, he insisted the region’s financial services industry should remain open to competition.
“You want to have a market which is open, so that if there are foreign banks, foreign investors, bringing their expertise, their capital, into your jurisdiction, that should be welcome,” Mr Enria said.
The regulator said he expected another seven big lenders and 17 smaller institutions would fall under SSM supervision as banks relocate from London after Brexit. They are expected to add around 6 per cent to the €21.2tn of assets under SSM supervision.
It is the first time that the Frankfurt-based supervisor has revealed exact figures on how its ambit will expand post-Brexit. The SSM already directly supervises the 117 biggest and most complex banks in the region.
“We are asking banks to provide us with their . . . models on how they will gradually move assets from the UK to the euro area, and we expect around €1.2tn of assets to be moved to be under the supervision of the SSM. This is concentrated — let’s say 90 per cent — in the seven largest institutions,” Mr Enria said.
Most banks had now been granted licences, he added.
Mr Enria countered financial industry criticism of the ECB’s low rate policy, saying “banks need to be able to cope with any interest rate environment” and that cheap borrowing costs had bought the region time in dealing with its large stock of bad loans. “To some extent I am glad that we still have this window to allow more space for adjustments,” he said.
He said it was his duty to take the supervisor from its “start-up” phase to become a more transparent institution where supervisors have more discretion in dealing with banks.
“The more you move to a more mature organisation, the more you can let supervisors exercise their judgment on the basis of the specific situation of each and every bank,” he said.
A common gripe among European banks is that the supervisor’s workings are opaque. Mr Enria, previously chair of the European Banking Authority, wants to give lenders a much clearer idea of how the SSM intends to apply guidance that specifies what individual lenders need to do beyond complying with the basic rule book.
“The point is . . . to make sure that it is more tailored to the bank. And to have a system which is more effective in identifying the specific risks that you want the banks to address,” he said.
He also wants more public information on this guidance — in part to give investors a better idea of what the SSM thinks.
“We need to have a more unified way of communicating to the market,” he said. “We are moving from taxpayers bailing out defaulting financial institutions to the concept of bail-in, where private investors are first in line to take losses. We need to create an environment in which investors have adequate information about the banks they invest in.”
The 57-year old Italian suggested the region’s banking system, and the way in which it is supervised, needed to be far more integrated. “We need to move to a setting in which you really have a genuine feeling that you are a European organisation, dealing with European processes and a truly integrated European culture.”
Despite 19 member states sharing a currency, it is uncommon for citizens to bank — or for lenders to devote substantial resources — outside their home market.
This, he said, led to a lack of a common shock absorber to counter periods of financial panic.
Another problem is that banks fail to diversify their holdings of government bonds. This creates the potential for a “doom loop”, where economic and financial weakness combines to create a vicious cycle of teetering banks and deteriorating public finances.
“There are levels of concentration, sometimes, that are extreme. The last time I saw the data you had [banks with] ten times their tier one capital [invested] in the domestic sovereign,” he says. “As a supervisor you cannot like that.”
He said digitalisation could provide “a golden opportunity” for more cross-border banking. Some lenders, such as Dutch bank ING, have managed to scoop up business outside their home member state through offering online-only bank accounts.