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

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5.2.2.2 European Union In Europe, the ECB also divides EU credit institutions into three groups: large, medium and small institutions. A large bank is defined as a bank with more than 0.5% of the total consolidated assets of the European banking sector, which corresponds to approximately €100 billion in assets. The threshold between small and medium-sized banks is set at 0.005% of total consolidated assets, which corresponds to €1 billion 236 . According to figures in table 9 below, the average size of a bank in Europe was €3,494 million in 2003. The smallest banks in terms of average asset size are the Finnish (€452 million) and Austrian banks (€686 million), whereas Belgian and Irish banks are the largest on average, with average asset size of €6,940 million and €6,044 million respectively 238 . Looking at table 8 below, which gives the asset size distributions of EU credit institutions, we can see that for 2002, 87% of EU credit institutions fall into the ‘small credit institution’ category, while 12% are medium sized and 1% of institutions would be considered large. However in terms of the total assets held by EU credit institutions, 65% are held by large institutions, 31% are held by medium-sized institutions, while small institutions hold only 5% of total assets 237 . Table 8: Asset size distribution of EU credit institutions, 2001-2003 2001 2002 2003 Number of credit institutions in the sample 4,625 5,083 4,258 Of which large (more than € 100 billion in assets) 57 (1%) 51 (1%) n.a. n.a. Of which medium (between 1 and € 100 billion in assets) 968 (12%) 933 (12%) n.a. n.a. Of which small (less than € 1 billion in assets) 3,600 (87%) 4,099 (87%) n.a. n.a. Assets of the credit institutions in the sample (in € million) 24,173,643 24,409,351 22,553,000 Of which large 16,042,622 (66%) 15,753,752 (65%) 15,787,100 (70%) Of which medium 7,217,943 (30%) 7,459,721 (31%) 5,863,780 (26%) Of which small 913,078 (4%) 1,195,878 (5%) 902,120 (4%) % of total number of all EU credit institutions 57.2% 65.6% 57.2% % of total assets of all EU credit institutions 98.8% 99.5% n.a. Notes: It should be emphasized that the percentages given for the number of credit institutions (i.e. 1%, 12% and 87%) refer to the total number of EU institutions, and not only the ECB samples. These samples take into account 99% of the total assets of the EU credit institutions, but in terms of number, these samples represent 57% to 66% of the total number of EU credit institutions. For the year 2003, the data refer to domestic credit institutions only (i.e. excluding foreign controlled subsidiaries and branches). Sources: "EU banking sector stability", ECB, February 2003; "EU banking sector stability", ECB, November 2003. "EU banking sector stability", ECB, November 2004. Table 9: Average size of EU credit institutions, 2002-2003 2002 2003 in $ million in € million in $ million in € million Total EU credit institutions 3,149 3,128 3,494 4,159 Source: ESBG calculations based on data from the ECB. 236 “EU Banking Sector Stability”, February 2003, ECB. 237 “EU Banking Sector Stability”, February 2003, ECB. 238 ESBG calculations based on ECB data for the Euro zone, and national bank data for Denmark, Sweden and UK. 82
5.2.2.3 Comparison It is difficult to make average size comparisons of credit institutions in the US and the EU given that different definitions of bank sizes, in terms of assets held, are used. In general terms however, it can be said that the banking industries of both areas are dominated by small to medium-sized (depending on definition) institutions (94% of US banks i.e. excluding credit unions, have less than $1 billion in assets, while 87% of EU banks have less than €1 billion in assets), but that the majority of the industry’s assets are concentrated among a few large institutions. Comparing the average size of credit institutions for the year 2003, the average size of a FDIC insured bank in the US is €831 million, compared to Europe’s €3,494 million. The average US bank is therefore considerably smaller than the average EU bank, in spite of the fact that credit unions, which are considerably smaller than other banks, are excluded from that number (as they are not FDIC insured). It is interesting to note that under US definitions, the average (FDIC insured) US bank is a medium-sized bank, while the average EU bank is a large bank. Under EU definitions, however, the average US bank would be considered a small bank, while the average EU bank would be considered a (small) mediumsized bank. This is quite revealing, for it highlights that if we were to regard the size of average institutions as one indicator of the concentration of a banking market we would conclude that the US banking market is in fact more ‘fragmented’. This is reinforced if we take note of the previously revealed fact that the US has many more credit institutions (whether or not one includes credit unions) than the EU. All this suggests in fact that banking in the US is rather a small scale, local affair, and that although the US is known for producing many of the world’s ‘mega-banks’, this model of banking is in fact not representative of the majority of the industry. 83
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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
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 and 40: In contrast, building societies in
Page 41 and 42: The commitment of savings banks is
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Page 55 and 56: Another important factor in the cho
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
Page 67 and 68: The best execution rule was first m
Page 69 and 70: 4.3.2.2.4 National Market System ru
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 86 and 87: 5.2.3.2 European Union Average CR5
Page 88 and 89: In terms of the nature of consolida
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Page 94 and 95: 5.3.2 Efficiency of credit institut
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Page 98 and 99: Finally, looking at cost-income rat
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Page 106 and 107: Under an open-end credit, the credi
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Page 116 and 117: The residential mortgage market in
Page 118 and 119: Funding by retail deposits represen
Page 120 and 121: In sharp contrast, the US mortgage
Page 122 and 123: 6.2.3.1.2 Lenders to small business
Page 124 and 125: The securitisation process requires
Page 126 and 127: Factoring is also continuously gain
Page 128 and 129: 6.2.3.2.4 Securitisation of small b
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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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