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

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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. 130
6.3.1.2 Retail and commercial payments The table below summarises the evolution of the volumes of cashless retail and commercial payment transactions in the US, by type of payment instrument or channel: Table 24: Annual volume of non-cash payment transactions in the US (billion transactions - estimates) 2000 2004 Av. % change p.a. Credit transfers (1) (2) 4.3 5.1 6.0% Direct debits (1) 2.4 5.8 25.0% Cheques 41.9 34.8 -5.0% Debit card transactions 8.3 19.4 24.0% Credit card transactions 15.6 19.1 5.0% ATM cash withdrawals n.a. 5.9 n.a. Total cashless transactions n.a. 90.1 n.a. Excluding ATM cash withdrawals 72.5 84.2 4% Excluding cheques and ATM cash withdrawals 30.6 49.4 12.5% Sources: 2004 Federal Reserve Bank Payments Study; March 2006 BIS-CPSS "Statistics on payment and settlement systems in selected countries". (1): Credits and debits processed according to ACH rules. (2): "EBT" (Electronic Benefits Transfers) transactions have here been added to credit transfer transactions. Overall, the volume of US retail and commercial cashless payment transactions grew by about 4% p.a. between 2000 and 2004 (on a like for like comparison, i.e. excluding ATM cash withdrawals). This moderate growth rate – somewhat higher than the growth in real Gross Domestic Product, yet lower than the growth in real personal consumption expenditure – hides significant differences between the various payment instruments: - Cheques: once the US payment instrument of choice. In 2004 they still accounted for nearly 41% of cashless payment instruments (excluding ATM cash withdrawals), compared with a 58% share in 2000. Although the average rate of decline was 5% p.a., the much higher than anticipated actual decline which had been accelerating year on year seems to have reached a plateau in 2003 and 2004. Experts conjecture whether this is a trend likely to continue. These figures however refer to cheques paid (by depository financial institutions), not to the sum of cheques written. Indeed consumer cheques are increasingly converted – at the point of sale by agreement between the merchant and the customer – into electronic debits through the Automated Clearing House (ACH) network. This conversion fuels to some extent the growth in ACH debit transactions, although the total volume of debits is still smaller than the overall decline in cheque volumes, which points to a genuine migration to other types of payment instruments. It is estimated that currently consumers migrate more rapidly to other instruments than business does. - Cards: the US was also once touted as the country of the credit card. This image will need revision in the very near future, as debit card transactions grew strongly between 2000 and 2004 at 6 times the average growth rate for all cashless payment instruments, and now outperform credit card transactions (not taking into consideration proprietary store cards). With more US issuers constantly deploying chip and PIN-based debit card solutions, this is a trend which is likely to continue. It should be noted however that up to now most of the growth has been in off-line debit. With so far a very limited deployment of the EMV security protocol, this area looks like a tempting target for fraudsters. 131
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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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Despite the trend towards the estab
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In the European Union, contrary to
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Although younger than CESR, both CE
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Another important common feature be
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The best execution rule was first m
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The ISD set a basis for the develop
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Best execution rules exist in both
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The decline of savings institutions
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Relative to population, the Europea
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