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

The above fears can hardly be allayed by the
promises of securitisation of SME loans in either
region. In both the US and the EU, in spite of state
guarantee programs for SMEs being in operation in
both regions, SME securitisation issuance is very low.
The annual volumes of small business securitisations
in recent years in the US have amounted to much
less than $1 billion. Surprisingly, this is in fact much
smaller than SME securitisation volumes in Europe.
The total volume of new SME securitisation issues in
the period 1999-2002 was of the order of €17
billion for Europe, and equivalent to only €2.5 billion
for the US 374 .
Many reasons explain this state of affairs, among
which the fact that the characteristics of SME loans
make it difficult or even prohibitively expensive to
securitise them. In some countries of Europe, like the
UK and France, the belief is that the absence of
interest in securitising SME assets is a result of the
funding and capital strengths of the banking system.
In any case, if government subsidisation of a secondary
market for such loans encourages the securitisation
of relationship loans, with a corresponding loss in
relationship benefits, the securitisation of SME loans
may add to the problem of SME/small business
access to finance, rather than help resolve it.
6.3 Payments comparison
6.3.1 Payments in the US
6.3.1.1 Market participants
6.3.1.1.1 The Federal Reserve Bank
As a consequence of the Federal Reserve Act of 1913
(FRA), the Federal Reserve Bank has responsibilities in
conducting monetary policy and providing payment
services to deposit taking institutions. The payment
services of the Federal Reserve Bank include:
Under the Monetary Control Act of 1980 the Federal
Reserve Bank is required to charge for certain payment
services provided to deposit taking institutions (such
services include cheque collection, ACH processing,
Fedwire, the National Settlement Service). The Federal
Reserve Bank charges must be set in such a way
that the long term costs of providing such payment
services are fully covered (also taking into
consideration the impact of de-facto cost of capital
and relevant taxation).
Monetary policy is formulated and implemented through
the Federal Open Market Committee. The Federal
Reserve Bank of New York, on behalf of the Federal
System, executes the relevant open market operations.
6.3.1.1.2 Financial intermediaries (other than
the Federal Reserve System)
In total over 10,000 depository institutions provide
payment services in the US. Since the late 1970s the
former regulatory restrictions as to the type of services
that thrift institutions could provide have been
largely repelled. Payment services are now also
provided by “non-bank banks” also called “limited
service banks”, such as bank card companies or the
United States Postal Service.
The presence of these relatively new actors represents
a challenge on the legal front, according to the
Federal Reserve Bank, who acknowledges that
“Our retail payments laws are antiquated, difficult to
interpret and hard to change. Both technical
innovation and the role of non-bank participants in
US retail payment systems have evolved much more
quickly than the law has changed” 375 . Indeed, for the
time being, non-bank payment service providers tend
to be subject to State law rather than Federal law,
which may lead to differences in requirements and
levels of customer protection in case of problems.
- the distribution of currency and coins,
- the collection and return of cheques,
- the electronic transfer of funds and securities,
- including the processing of ACH payments,
- the provision of a national settlement service.
374 “Study on asset-backed securities: impact and use of ABS on SME finance”, GBRW Limited for the European Commission, November 2004.
375 Speech by Pat Barron, First Vice President and Chief Operating Officer, Federal Reserve Bank of Atlanta, 19th June 2005, Santiago, Chile.
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