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

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5.2.3.2 European Union Average CR5 (market share of the 5 largest credit institutions ranked by total assets) in terms of assets in individual Member States in the EU15 in 2003 ranged from 22% to 84% (see table 10 below). The five largest institutions hold the highest proportion of banking assets relative to the rest of the domestic banking industry in countries such as the Netherlands, Finland and Belgium. These countries all have CR5 around the 80% mark, which denotes very high concentration. We can then observe three other groups in terms of levels of concentration in the EU: the ‘sixty percenters’: comprising of Greece, Denmark, Sweden and Portugal, the ‘forty percenters’: which includes France, Ireland, Italy, and Austria, and the ‘thirty percent and below’, including Italy, Luxembourg, the UK, and Germany. An estimate of asset based CR5 for the whole of the EU15 (i.e.: a calculation of the asset concentration of the five biggest European banks, by assets) reveals that at year end 2003 these held 14.5% of total EU15 bank assets 245 . Not only concentration ratios themselves, but also the pace of concentration has varied widely between individual Member States over the period 1990-2003. The largest increases over the period 1990 to 2003 have occurred in Belgium (73%) and Germany (57%), although the latter still has relatively low levels of concentration, while the former has among the highest in Europe. Table 10: Evolution of the share of the 5 largest credit institutions in total assets in the European Union (%) 1990 1995 1997 1998 1999 2000 2001 2002 2003 Growth 1990-2003 Belgium 48 54 54 63 76 75 78 82 83 73% Denmark 76 74 70 71 71 60 68 68 67 -12% Germany 14 17 17 19 19 20 20 20 22 57% Greece 83 76 56 63 67 65 67 67 67 -19% Spain 35 46 32 35 41 46 45 44 44 26% France 42 41 40 41 43 47 47 45 47 12% Ireland 44 44 41 40 41 41 43 46 44 0% Italy 19 26 25 25 25 23 29 31 27 42% Luxembourg n.a. 21 23 25 26 26 28 30 32 52% Netherlands 73 76 79 82 82 81 83 83 84 15% Austria 35 39 44 42 41 43 45 46 44 26% Portugal 58 74 46 45 44 59 60 60 63 9% Finland 53 69 88 86 86 87 80 79 81 53% Sweden n.a. n.a. 58 56 56 57 55 56 54 -7% United Kingdom n.a. 25 24 25 28 28 29 30 33 32% EU average n.a. n.a. 30 33 35 36 38 35 40 33% Notes: EU averages have been weighted by the assets size of the banking sector. The growth rates have been calculated according to the years for which data are available. For Finland, the change in 2001 is due to a reclassification (see Table C in Annex). Source: 1990, 1995 figures: ECB (1999a); 1997 to 2003 figures: ECB," Report on EU Banking Structure", November 2004. 245 ESBG calculations. 86
Measuring banking market concentration solely by looking at asset concentration is however limiting, yet the only comparable data for the EU Member States (which comes from the European Central Bank) is on asset concentration. Concentration ratios for deposits or loans would be more useful as such information is more revealing about market power. Our own calculation of the concentration of non-bank deposits in the EU 15 reveals that Europe’s top 5 banks (in terms of non-bank deposits) held 17.6% of European non-bank deposits in 2003. This compares to the CR5 reported above, of 14.5%, calculated in terms of assets. While the two figures do not reveal significant differences in concentration, there are instances of great discrepancies between concentration ratios for individual Member States, of which the UK is a prime example. While the UK has a low asset concentration ratio compared to other EU Member States (see table 10 above, which reveals a CR5 of 33% for the UK in 2003), already in 2000 the five biggest banks there held 79% of current accounts, 37% of loans and 67% of the credit card market, while the ‘big four’ owned 60% of all branches 246 . At least part of the explanation for the relatively low asset concentration of banks (compared to other measures of concentration) in the UK could be due to the many non-retail banks active in Europe’s biggest financial centre being included in the calculation of total asset concentration of the UK market. In terms of the nature of increasing levels of concentration in Europe’s banking markets, much of it has been due to banking consolidation. The nature of consolidation itself has been mainly domestic. To give an idea of the proportion of domestic to crossborder M&A, domestic deals constituted 87% in number and 90% in total value of banking M&A activity in Europe in the 90’s 247 . Activity has however picked up since the 90’s, with 20% of the value of all banking consolidation deals being cross-border deals for the period 1999 to 2004, with the Abbey/SCH deal ($16.8 billion in value) pushing this proportion to 40% in 2004 248 . The Abbey/ SCH deal was then the largest cross-border M&A deal ever executed in Europe. A rough estimate of the proportion of cross-border activities to total M&A deals in Europe in terms of value for 2005 is 70% 249 . Two big cross-border deals occurred that year, as HVB Group and UniCredit merged for a $22.3 billion deal value (an even bigger deal, therefore, than the Abbey/ SCH merger) and as ABN Amro acquired Banca Antonveneta for $7.2 billion. Activity for 2006 so far includes the acquisition of the Italian bank BNL by BNP Paribas for $11 billion. In all, these deals mean that four of the ten biggest European cross-border bank mergers and acquisitions since 1995 have occurred in the last two years 250 . 5.2.3.3 Comparison Similarly to the US, the last couple of decades have been periods of high levels of consolidation for the EU banking industry. Data on market concentration may not lead us to make straight-forward comparisons as recent data comes from different sources and is limited to asset concentration (and then, data on the asset concentration of the five largest credit institutions by asset size in each individual European Member State is largely the only publicly available information on bank concentration in the EU). Also, while asset concentration figures are relatively easy to come by for both the US and the EU, concentration ratios for products, more revealing about market power, are not. Yet looking at such information can give a much different picture for an individual country, as we explain above for the UK. Keeping that in mind, CR5 in terms of asset concentration for the EU 15 was 14.5% in 2003, while 2003 US CR5 was 37.6%. While the asset based CR5 for Europe’s top five banks may seem small compared to US CR5, looking at the CR5 of individual EU Member States reveals that in a number of European Member States, levels of concentration are in fact much higher than in the US (i.e.: The Netherlands (84%), Belgium (83%), Finland (81%), Denmark (67%), Greece (67%), Portugal (63%)). Consider also that, of the EU15, only 4 Member States have CR5s lower than the US (2003 figures). 246 “The Future of Retail Banking in Europe: A view from the top”, 2002, Oonagh McDonald and Kevin Keasey, Unisys. 247 “Banking Consolidation in the EU: Overviews and Prospects”, May 2004, R. Ayadi and G. Pujals, CEPS Research Report in Finance and Banking, No 34. 248 “Cross-border consolidation in the EU financial sector”, Commission Staff Working Document, September 2005 249 ESBG calculation from figures in The Economist survey of international banking, May 20th 2006. 250 The Economist survey of international banking, May 20th 2006. 87
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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
Page 35 and 36: 3.2.2.2.2.2 Ownership and corporate
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Page 59 and 60: Although younger than CESR, both CE
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Page 71 and 72: The ISD set a basis for the develop
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Page 120 and 121: In sharp contrast, the US mortgage
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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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