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

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In terms of market share measured by total assets, commercial banks are in the US as well as in the EU the market leaders, followed by the savings institutions. In Europe on average (across all Member States), the market share of credit unions and cooperative banks is the lowest. 3.2.3.2 Ownership structure As explained above, the vast majority of US commercial banks are owned by bank holding companies, primarily because holding companies are not restricted as are banks themselves in terms of the activities they can carry out. No such need has existed in Europe for a common form of ownership which means that the corporate structure of commercial banks is not uniform throughout the EU. However, in certain European countries, commercial banks can only be limited liability companies, while in the many remaining Member States, commercial banks have opted for the public form of the limited liability company, giving them access to shareholders on public stock markets. Originally, most US savings institutions were mutuals. But since the early 1980’s, there has been a growing trend of shifting ownership from depositors to shareholders through the so-called mutual-to-stock conversion, the main reason being to raise equity capital, such that today most US thrifts are stock companies. Also, the mutual holding company form allows thrifts, as commercial banks with the holding company form, to be part of universal finance groups offering insurance and securities services and underwriting as well as investment banking. In contrast in Europe, savings banks come in a variety of legal forms, from being privately to publicly owned, to being limited liability companies, cooperatives or even (private or public) foundations. Credit unions in the US and cooperative banks in the EU naturally have a cooperative ownership structure. 3.2.3.3 Deposit guarantee systems All credit institutions in the US as well as in the EU are legally obliged to be members of some kind of deposit guarantee scheme. The federal insurance funds BIF, SAIF and the NCUSIF insure deposits up to $100,000 per depositor and bank, while the minimum guarantee sum according to the Directive 94/19/EC is 20,000 Euros. But given that the directive only sets a minimum, individual Member States are free to establish a higher level of protection nationally. Thus, a number of EU Member States have voluntary protection schemes which impose a much higher minimum guarantee than that required by the EC directive, with Germany for instance requiring coverage of €100,000. The insurance system in the US is a two-tiered one, since credit institutions may be insured either at state or federal level and the affiliation to one or the other insurance fund is then further determined by the type of charter of the institution in question. In the EU on the other hand, guarantee and protection schemes and the laws governing them only exist at national level. There are clear requirements for the national regimes given by the above mentioned directive, but within this framework Member States may choose the structure that suits the conditions in their banking environment best. Thus, there are for example Member States with funds for all credit institutions and others, in which several funds or protection schemes have been established. 3.2.3.4 Corporate Social Responsibility Credit institutions in the US, regardless of type, are legally required to serve the convenience and needs of all segments of their local communities via the Community Reinvestment Act (CRA). A satisfactory CRA-rating is required to get the approval for charters or bank mergers, acquisitions and branch openings. In Europe on the other hand, there is no equivalent responsibility imposed by regulation at the EU level 112 , though there are laws in certain EU Member States 113 that require companies to report on their social activities. In some EU Member States even, the social and welfare aims of savings banks are laid down in law 114 . 112 While no legislation exists at the level of the European Union which imposes rules of corporate social responsibility (CSR) on industry (in general, not just the banking industry), there has been a Green Paper and two communications by the European Commission on CSR. The Green Paper suggested that a European approach, or a European framework, could help increase the coherency and credibility of companies' work on CSR and as a follow up to the Green Paper, a 2002 communication was issued by the Commission which did not include any calls for mandatory regulation in the field of CSR. The latest communication, of March 2006, calls on businesses to strengthen their CSR commitment in order to contribute to EU sustainable development, economic growth and job creation. Further, it defines broad orientations for EU CSR policy, based on a number of principles and set of actions. 113 Namely in France (Nouvelles Régulations Economiques (NRE), which is applicable to public limited companies) and the UK (Corporate Responsibility (CORE) Bill). 114 Examples are the Savings Banks Acts of the Bundesländer in Germany, Article L. 512-85 of the Code Monétaire et Financier in France and the Obra Social in Spain. 40
The commitment of savings banks is however not limited to what is laid down in national law. Contributing to the improvement of living conditions, supporting the local economic development and building greater social cohesion in the local communities where they operate is an integral part of European savings banks’ identity and one of their distinctive features among financial players. These commitments to society activities, traditionally developed by savings banks, are however only one of the pillars of savings banks’ broader Corporate Social Responsibility (CSR) approach. Their long-term commitment towards meeting the critical needs of local communities and society have increasingly materialised via the integration of social, environmental as well as economic concerns in their business operations and stakeholder relations. Savings banks have thus adopted, on a voluntary basis, a balanced and comprehensive approach to socially responsible practices, covering a whole range of aspects, including economic (e.g. microcredit, regional development, financial inclusion), social relations (e.g. workforce life-long learning, training), and environmental (e.g. preservation of natural heritage, protection of the environment campaigns) issues. 3.2.3.5 Taxation In the US, both commercial banks and thrifts are subject to regular corporate income tax. In contrast federal and state chartered credit unions still enjoy some tax exemptions in spite of the fact that, as with thrifts, credit unions have reached the point of active competition with taxable institutions. The situation in Europe is comparable, with cooperative banks being the only types of credit institutions still benefiting from tax exemptions. On the other hand, the tax benefits of European cooperative banks are not as advantageous as in the US where federal credit unions are exempt from all federal and state taxes and state chartered credit unions are exempt from all federal and most state taxes. 3.3 Financial Conglomerates 3.3.1 United States As explained in the ownership structure and activities section of the US commercial banks description, repeal of the Glass-Steagal Act via the Gramm-Leach Bliley (GLB) Act has led to 97% of insured commercial bank assets in the US today being owned by bank holding companies. The creation of a new form of bank holding company under the GLB, the financial holding company, allowed banks for the first time to engage directly in activities such as securities underwriting and dealing, insurance agency activities and insurance underwriting, acting as a futures commission merchant, and merchant banking (‘financially related activities’). Other activities, financial or non-financial, may also be engaged in by financial holding companies, by special permission from the Federal Reserve Board and the Secretary of the Treasury (refer to US commercial banks description of this chapter for more detail). A financial holding company has to be registered with the Federal Reserve Board. The registration requires that each of the subsidiary banks is well-capitalised and well-managed and that all of its insured subsidiary banks maintain a Consumer Reinvestment Act-rating of at least satisfactory. 3.3.2 European Union 3.3.2.1 Introduction Because of demographic developments, deregulation, increasing competition and innovation, financial companies are increasingly moving into each other’s areas. In Europe the combination of banking and insurance has become increasingly popular. Banks are now acting as insurance agents or brokers by selling insurance policies through their branch networks, insurance companies are selling insurance policies that have all the characteristics of investment products, and many commercial banks have moved into the securities business. In the area of banking, this corresponds to the universal banking model where commercial and investment banking are combined in the legal entity. This is the standard European model allowed under the Second Banking Coordination Directive. 41
Page 1: September 2006 RESEARCH A COMPARATI
Page 4 and 5: IE UK FR BE NL LU DK DE SE CZ AT SL
Page 6 and 7: The following WSBI/ESBG committees
Page 8 and 9: 4 Regulation and supervision compar
Page 10 and 11: 6.5 Issues of competition in retail
Page 12 and 13: To finish, if we had to pick from a
Page 14 and 15: In the US, credit institutions have
Page 16 and 17: Following the same logic, the EU co
Page 18 and 19: In that context, it is tempting to
Page 21 and 22: 3. INSTITUTIONAL COMPARISON 3.1 Sec
Page 23 and 24: The market share of the US banking
Page 25 and 26: FDIC-insured commercial banks are i
Page 27 and 28: The subsidiary stock institution is
Page 29 and 30: Regulatory reform over the past thi
Page 31 and 32: State credit unions were first exem
Page 33 and 34: There has however been much effort
Page 35 and 36: 3.2.2.2.2.2 Ownership and corporate
Page 37 and 38: Hermann Schulze-Delitzsch and Fried
Page 39: In contrast, building societies in
Page 43 and 44: 4. REGULATION AND SUPERVISION COMPA
Page 45 and 46: In addition, for regulations define
Page 47 and 48: The European Parliament has to be k
Page 49 and 50: In fact, it should be mentioned her
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Page 57 and 58: In the European Union, contrary to
Page 59 and 60: Although younger than CESR, both CE
Page 61 and 62: 4.2.5.1.1.1.1 Limitation of the geo
Page 63 and 64: 4.2.5.1.1.3 Recent trend: regulatio
Page 65 and 66: Another important common feature be
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Page 71 and 72: The ISD set a basis for the develop
Page 73: Best execution rules exist in both
Page 76 and 77: The decline of savings institutions
Page 78 and 79: Relative to population, the Europea
Page 80 and 81: 5.2.2 Size of credit institutions 5
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Page 84 and 85: 5.2.3 Concentration and consolidati
Page 86 and 87: 5.2.3.2 European Union Average CR5
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100% Graph 9: Structure of the asse
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In terms of growth of the volume of
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5.3.2 Efficiency of credit institut
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Table 16: Evolution of the Return o
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Finally, looking at cost-income rat
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9. The last couple of decades have
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102
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Furthermore, the average outstandin
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Under an open-end credit, the credi
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Table 19: Evolution of outstanding
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6.2.1.2.2 Regulatory framework over
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6.2.1.3 Comparison 6.2.1.3.1 Size o
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In terms of market competition, the
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The residential mortgage market in
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Funding by retail deposits represen
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In sharp contrast, the US mortgage
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6.2.3.1.2 Lenders to small business
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The securitisation process requires
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Factoring is also continuously gain
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6.2.3.2.4 Securitisation of small b
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The above fears can hardly be allay
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- ACH credits and debits: the stati
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6.3.2.1.2 Financial intermediaries
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It should be noted that two of the
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Assuming that technology, globalisa
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The report adds: “although it bou
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Graph 19: Use of different distribu
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In terms of funding of the business
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Since then, established banks have
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MoU Memorandum of Understanding OTC
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Annex 2: Statistical appendix Table
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Table F: Share of US banking indust
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Table L: Structure of the liabiliti
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Table R: Number of ATMS in the EU a
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F - Federal Deposit Insurance Corpo
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A comparative analysis of the US and EU retail banking markets - Wsbi

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