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

In contrast, building societies in the British Islands
have as their purpose or main purpose making loans
which are secured on residential property and
funded substantially by their members. But they also
have the freedom to engage in any other activities
like current accounts, credit cards, travel money,
unsecured loans, and various types of insurance and
estate agency services. Legislation only imposes
restrictions on some matters relating to securities,
commodities or currency markets.
3.2.3 Comparison
3.2.3.1 Types of institutions and their activities
Notwithstanding the details, both the US and the
European banking markets are characterised by
the same three major types of credit institutions:
commercial banks, savings banks and cooperative
banks/credit unions.
The simple explanation for this is that the ideological
roots of American institutions are in Europe.
The existence of different types of credit institutions
in the US as well as in the EU also highlights that in
both markets there is a common need from banking
customers for pluralism in banking structures.
One key difference between the US and EU banking
markets however is that in the US credit institutions
each have their own specific charter according to
bank type, such that each of the above listed major
types of credit institutions represent distinct and
specific legal forms in the US. In contrast in the EU,
commercial, cooperative and savings banks represent
different types of actors which are not tied to any
particular legal form.
Another important difference between the US and
EU banking markets also stems from the chartering
system in place in the US, whereby credit institutions
are regulated and supervised by distinct bodies,
according to their charter type. In Europe, all credit
institutions, irrespective of their legal form, are bound
by the same laws and regulations, and supervised by
the same bodies.
With regard to the activities of credit institutions
such as commercial banks and thrifts in the US,
restrictions are circumvented by most such
institutions via the bank and mutual holding form of
ownership, with the consequence that commercial
and savings banks in the US perform much the same
activities as their European counterparts.
Another similarity between the EU and the US is that
the gradual removal of the restrictions of the
activities of savings banks (as well as savings and
loans associations in the US) has meant that such
institutions, as their commercial counterparts, are
today by and large 111 universal banks which provide
a wide range of banking services. However, in the US
as well as in Europe savings banks in general
continue to focus on their traditional retail business.
The only difference is with regard specifically to
savings and loans associations in the US which,
unlike US savings banks, were especially established
to promote the finance of housing. While US savings
and loan associations – just like the British building
societies – also benefit today from almost identical
powers to other financial institutions, and are thus
able to a bundle of different products, they are
required by law to preserve their primary character as
retail mortgage lending institutions. In contrast in
the few European countries in which mortgage
banks and building societies dominate the housing
finance market, they still have their original profile as
well as a legal obligation to focus exclusively on
providing housing finance.
Equally, regulatory reform over the past thirty years has
allowed credit unions in the US to evolve from niche
players to full-service retail depository institutions.
Credit unions now behave just like other depository
institutions, offering virtually the same financial
services as banks, savings banks and savings and
loan associations. There are still some distinctions
though such as the existence of stricter limitations
on the commercial lending and securities activities of
federally-chartered credit unions compared to
national banks and federal savings associations, as
well as usury ceilings and limitations on loan terms.
EU cooperatives are also universal banks, able to
engage in a wide range of banking as well as other
financial activities. Both US credit unions and EU
cooperatives can also nowadays offer their services
to non-members.
As regards mortgage banks, these institutions are
quite different in the US from those in the EU.
Since mortgage banks in the US sell their loans to the
secondary mortgage market, they require only
limited own funds to do their business. In contrast,
EU mortgage banks need to fund their loans – which
remain on their balance sheets – for the lifetime of
the loan. European mortgage banks also have to
fund their loans on the basis of their own financial
strength or the quality of securities.
111 There are a few notable exceptions in Europe, as expressed in the description of European savings banks.
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