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

6.5.3 Comparison
The largest competitive threat to traditional credit institutions
in the US has come in the form of private and public issuers
of asset-backed securitisations in the last twenty years.
In Europe it has been in the form of non-banks, operating
especially in the consumer credit segments of the market.
As US domestic debt has moved from being funded via
traditional intermediation to being funded directly through
credit markets, ABS issuers have clawed significant parts of
the residential and business mortgage markets as well as the
consumer credit market.
US commercial banks have however largely held their own
pretty well. Though they suffered losses in market shares of
the short-term non-mortgage business borrowing (mainly to
non-banks), and the consumer credit market (to ABS issuers),
they have actually increased their share of the business
mortgage market and kept their share of the residential
mortgage market. The big losers from commoditisation
were however savings institutions, who lost their prime
positions on the mortgage markets, especially the residential
mortgage market.
Given that securitisation has not occurred on any big scale
in Europe, relative either to the US or to funding via
traditional means, issuers of securities do not represent a
threat in any of the traditional areas of activity of the EU
retail banks. However, unlike in the US, other non-banks
such as credit companies, auto companies and retailers
banks have appeared offering a number of competitive
products and services, though with little impact to date in
terms of market share. This and the fact that banks
themselves are getting involved in a number of non-bank
ventures means that the threat is measured. How this
develops going forward depends very much on the ability of
these non-banks to leverage on specialised, convenience
aspects of what they offer but, as the UK example has
proven to date, it is likely to be difficult for them to rival on
price with the established banks.
But US commercial banks, with the exception of the community
banks, have also benefited from commoditisation by providing
services for loans not booked on their balance sheets,
earning important non-interest income from such activities.
Other than the competition that has come with increased
securitisation of parts of the US retail banking market, the
threats of non-banks on the traditional activities of the retail
banks have not been significant in the US. Supermarket
banking is well established there, but not in the European
form of retailers establishing their own banks, rather in the
form of banks establishing themselves in supermarkets. As
many as 8,000 such branches exist in the US. Other types of
non-banks such as credit unions, auto financing from the
large car makers, GE capital financing and leasing
operations and broking houses, proliferate but, as we could
see above, none of those register any significant market
share in the traditional businesses of US retail banks.
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