A comparative analysis of the US and EU retail banking markets - Wsbi

In terms of market competition, the high concentration
of market players in the US (there are currently three
main credit bureaus dominating the market: Equifax,
Experian and TransUnion) is unlikely to be replicated in
the EU (at least in the short-term). The heterogeneity
of the categories of databases (content and ownership
wise) and the different levels of personal data
protection in existence in the Member States
characterise the EU market. Global credit data firms
such as Experian or Equifax already operate on both
sides of the Atlantic through a large number of
subsidiaries. In spite of this, EU public central
databases held by central banks continue to play an
essential role in collecting and making available to
lenders (under certain conditions) credit data which
is then also used for statistical information purposes.
Bilateral and multilateral agreements among owners
of central credit databases are likely to increase if
there is a larger demand from lenders to access
credit databases from different Member States.
As far as privacy is concerned, there are substantial
differences in the approaches taken in the US and
the EU. The large number of consumer credit reports
put into circulation in the US market increases
considerably the risk of data errors and abuses with
important (negative) consequences for consumers.
The US Fair Credit Reporting Act therefore sets a
mechanism to reinforce the information regularly
provided to consumers on their credit reports.
The EU Directive on personal data protection regulates
the minimum conditions which data collectors have
to respect when processing, storing and handling
personal data. This means that Member States,
when implementing the Directive into national law,
have added further provisions and this has led to
substantial differences in the levels of privacy in place
in the EU Member States.
6.2.2. Home lending
6.2.2.1 United States
6.2.2.1.1 Mortgage credit in the US economy
In the US, mortgage credit represents the bulk of
outstanding credit to households. In 2004, mortgage
credit represented 88% of total household credit,
while consumer credit only represented 9% 293 .
In terms of the size of the US mortgage market, $7.3
trillion (€6.1 trillion) of residential mortgage loans
were outstanding in 2003. In 2003, mortgage debt
relative to GDP in the US was of the order of 63% of
GDP 294 (see Table 22 on the following page).
6.2.2.1.2 Mortgage lenders and the funding
of mortgage loans in the US
In the immediate post-war period, the US housing
market was largely financed by the Savings and Loan
associations (or thrifts) and by the 1970s, they funded
as much as 60% of all residential mortgage loans.
These institutions undertook the core activities of
originating loans, assessing and managing risk and
servicing mortgages.
As the debt capacity of the US economy expanded in
the 1980s, the share of non-financial sector debt that
was directly funded by banks declined. This decline
was associated with a dramatic increase in the extent
to which lending to both households and businesses
became securitised 295 .
Today, the secondary mortgage market is the dominant
funding source for US mortgages, with around 2/3rd
of US mortgages being securitised 296 .
The growth of the importance of the mortgage market
in the US can’t be explained without reference to the
savings and loans crisis of the 1980’s. Before the
crisis, US thrifts funded long-term fixed-rate
mortgages via variable rate deposits: a viable system
while interest rates remained stable, no longer so
from the beginning of the 1980’s when interest rates
increased significantly. Thrifts were then forced to
pay increased rates of interest on deposits while
holding a portfolio of fixed-rate loans, thereby
experiencing a squeeze on interest margins and
liquidity. Many thrifts went bankrupt altogether.
293 See economic comparison chapter of study and table AH in table annex.
294 ESBG data.
295 “The evolving role of commercial banks in US credit markets”, Future of banking study, FDIC, 2004.
296 “Housing Finance: best practices from around the world”, IUHF World Congress 2004.
114