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

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The residential mortgage market in the US is a largely securitised market in which government-sponsored enterprises like Fannie Mae and Freddie Mac are the driving force. While the GSEs had acquired only 5% of all mortgage originations by the 1970s, when mortgage securitisation began in the US, by the late 1990s they had acquired 40% of new originations 302 . Though GSEs securitise loans on behalf of mortgage banks, they also originate about 5% of home mortgages in the US. Credit to buy residential property represents the bulk of outstanding credit to households in the EU. On average, 68% of all credit granted to households is credit to buy residential property, while 14% is consumer credit 304 (see table K, table annex). However, the share of home loans in outstanding credit to households varied between 40% and close to 90% in countries of the Eurozone in 2004. With the exception of Italy, Luxembourg and Austria however, housing loans represents at least 64% of all lending to households in countries of the Eurozone. 6.2.2.2 European Union 303 6.2.2.2.1 Home loans in the EU economy 100% Graph 16: Lending to the private sector in the US and the Euro area, 2004 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Austria Belgium Germany Spain Greece France Finland Italy Ireland Luxembourg Netherlands Portugal Euro area US ■ Consumer loans ■ Housing loans ■ Other loans to households ■ Business loans Source: for US data: Flow of Funds Accounts of the Unites States, Board of Governors of the Federal Reserve System; for EU data: Aggregated balance sheet of euro area monetary financial institutions, excluding the Eurosystem, National Bank of Belgium. 302 “The costs and benefits of integration of EU mortgage markets”, London Economics, August 2005. 303 While some EU countries use mortgages, others use home loans that are similar in purpose but are not secured on property. A mortgage loan here is therefore used in the sense of a loan that may or may not be secured on property. 304 2004 figures. 116
Table 23: Evolution of outstanding housing loans in the EU, 1995-2003 (in € billion) Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Germany 433.0 459.7 486.2 526.1 655.7 682.9 704.3 725.1 744.7 United Kingdom 456.5 543.9 644.2 657.0 784.6 882.7 946.8 1,054.5 1,113.2 Netherlands 98.0 115.6 135.7 161.1 190.6 232.3 259.8 282.9 302.4 France 238.2 244.6 251.7 260.9 282.2 301.9 321.1 346.8 381.3 Spain 75.7 85.6 104.3 123.3 145.2 176.7 205.8 235.1 276.0 Denmark 77.2 81.0 88.0 98.1 105.7 111.3 122.0 133.0 144.1 Italy n.a. n.a. n.a. 65.0 80.4 97.0 102.3 126.2 154.1 Sweden 54.6 57.9 58.5 57.2 67.8 70.1 70.9 82.2 93.6 Belgium 48.9 51.6 55.1 60.4 65.8 70.0 69.2 74.5 81.4 Austria 28.8 31.6 33.6 35.5 37.9 41.2 43.4 45.9 56.7 Portugal 15.0 18.9 24.1 32.4 42.2 50.7 57.4 64.8 66.4 Ireland 11.8 13.7 16.4 19.7 24.4 29.3 33.9 43.4 54.6 Finland 16.0 16.2 16.8 19.0 22.0 24.3 27.3 31.0 35.7 Greece n.a. n.a. n.a. n.a. n.a. 11.3 15.7 21.2 26.5 Luxembourg n.a. n.a. 4.2 4.6 4.8 5.9 6.6 7.1 8.3 EU-15 n.a. n.a. n.a. n.a. n.a. 2,787.5 2,986.4 3,273.9 3,539.1 Source: ESBG calculations based on data from EU National Banks, DG BUDG (for the euro exchange rate). In terms of size, in the EU15 countries approximately €3.5 trillion ($4.2 trillion) of residential home loans were outstanding in 2003. These loans represented 38% of EU15 GDP. By way of comparison, total government debt in the EU15 represents 64.3% of EU15 GDP 305 . Outstanding residential home loans as a proportion of GDP however varies a lot between different EU countries. In 2003, and for the following countries, it was as follows: Denmark, 147%; UK, 70%; the Netherlands, 67%; Spain, 35%; Germany, 34%; France, 24%; Greece, 17% 306 . 6.2.2.1.3 Lenders of home loans in the EU There are a number of key lenders in the EU markets for home loans, including traditional retail banks such as commercial, co-operative, savings, and public banks, as well as specialised mortgage banks. The latter are portfolio lenders, funding their mortgage assets to a large extent through the issue of mortgage bonds. The European market for home loans is dominated by retail banks. Commercial banks dominate in Italy, the Netherlands and the UK (where they held respectively 75%, 73% and 70% of outstanding mortgage loan assets in 2003). Savings and co-operative banks dominate in France (where together they hold close to half of all outstanding home loan assets) and Germany (where they hold 60% of such assets). Savings banks are the dominant mortgage loan providers in Spain, holding 55% of home loan assets. Specialised mortgage lenders issue almost all mortgage loans in Denmark and Sweden. 6.2.2.1.4 The funding of home loans in the EU Lenders in the EU fund home loans in either one of three ways: retail bank deposits from individuals, loans from banks and corporations through a variety of debt instruments or funding on the secondary markets via the issuance of mortgage bonds and residential mortgage backed securities (RMBS) that are covered by housing loans. Lending from retail deposits represents the main source of home loans in the EU, and make up upwards of 60% of such funding 307 . Meanwhile, mortgage bonds and RMBS finance respectively 18% 308 and just over 1% 309 of outstanding EU home loans. 305 ESBG data. 306 ESBG data. 307 “The integration of the EU mortgage credit markets”, Report by the Forum Group on Mortgage Credit, European Commission, 2004. 308 “The costs and benefits of integration of EU mortgage markets”, London Economics, August 2005. 309 “Risk and funding in European residential mortgages”, Mercer Oliver Wyman, April 2005. 117
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September 2006 RESEARCH A COMPARATI
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IE UK FR BE NL LU DK DE SE CZ AT SL
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The following WSBI/ESBG committees
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4 Regulation and supervision compar
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6.5 Issues of competition in retail
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To finish, if we had to pick from a
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In the US, credit institutions have
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Following the same logic, the EU co
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In that context, it is tempting to
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3. INSTITUTIONAL COMPARISON 3.1 Sec
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The market share of the US banking
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FDIC-insured commercial banks are i
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The subsidiary stock institution is
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Regulatory reform over the past thi
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State credit unions were first exem
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There has however been much effort
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3.2.2.2.2.2 Ownership and corporate
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Hermann Schulze-Delitzsch and Fried
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In contrast, building societies in
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The commitment of savings banks is
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4. REGULATION AND SUPERVISION COMPA
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In addition, for regulations define
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The European Parliament has to be k
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In fact, it should be mentioned her
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As far as coordination at the feder
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Despite the trend towards the estab
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Another important factor in the cho
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In the European Union, contrary to
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Although younger than CESR, both CE
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4.2.5.1.1.1.1 Limitation of the geo
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4.2.5.1.1.3 Recent trend: regulatio
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Page 71 and 72: The ISD set a basis for the develop
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Page 84 and 85: 5.2.3 Concentration and consolidati
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Page 92 and 93: In terms of growth of the volume of
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Page 96 and 97: Table 16: Evolution of the Return o
Page 98 and 99: Finally, looking at cost-income rat
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Page 108 and 109: Table 19: Evolution of outstanding
Page 110 and 111: 6.2.1.2.2 Regulatory framework over
Page 112 and 113: 6.2.1.3 Comparison 6.2.1.3.1 Size o
Page 114 and 115: In terms of market competition, the
Page 118 and 119: Funding by retail deposits represen
Page 120 and 121: In sharp contrast, the US mortgage
Page 122 and 123: 6.2.3.1.2 Lenders to small business
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Page 126 and 127: Factoring is also continuously gain
Page 128 and 129: 6.2.3.2.4 Securitisation of small b
Page 130 and 131: The above fears can hardly be allay
Page 132 and 133: - ACH credits and debits: the stati
Page 134 and 135: 6.3.2.1.2 Financial intermediaries
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Page 146 and 147: Since then, established banks have
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Page 150 and 151: MoU Memorandum of Understanding OTC
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Page 154 and 155: Table F: Share of US banking indust
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Page 158 and 159: Table R: Number of ATMS in the EU a
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