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

In terms of the nature of consolidation in the US and
the EU, it has been similar, with the great majority of
it being intra-state. As for inter-state mergers, they
were encouraged by the adoption of the Riegle-Neal
Act. It is however important noting that inter-state
expansion in the US has occurred mainly via interstate
branching, rather than via multi-state banking.
Indeed, multi-state branches make up nearly 29% of
total US branches, while multi-state banks represent
less than 3% of total US credit institutions.
In Europe, until recently the value of cross-border
M&A as a proportion of total M&A was low, but a
few large deals in the last couple of years have
significantly increased that proportion.
It is interesting that inter-state expansion has been
relatively low in the US even though regulatory, cultural
and linguistic differences, which are mentioned as
key obstacles to such deals in Europe, are not issues
in the US (or at least not in a comparable way).
This may however be explicable in terms of other
comparable factors that render difficult the
achievement of cost and revenue synergies for banks
wanting to operate across US or EU (Member) states.
Cost savings can more easily be achieved by inmarket
rather than out-of-state bidders, given the
former’s ability to cut overlapping facilities such as
branches. Also, the reward of higher profits via
higher prices due to increase in market power is not
available in a cross-border/ state context.
5.3 Credit institutions
5.3.1 Balance sheet structures
5.3.1.1 United States
5.3.1.1.1 Bank liabilities
Non-bank deposits make up the greater part of FDIC
insured 251 bank liabilities. The proportion of non-bank
deposits to total liabilities has however been falling
over the years, as can be seen in graph 8 opposite
(see associated figures in table I of the table annex).
While in 1992, non-bank deposits represented 80.7%
of total liabilities, by 2003 it had fallen to represent
69.1% of total liabilities. It should be noted however
that non-bank deposits at FDIC insured institutions
have actually been growing during the same period
(at an average of 5% a year), just that they have
not grown as fast as other types of liabilities such as
‘other borrowed funds’ (which includes mortgage
indebtedness and obligations under capitalised
leases) which have grown by 14% a year or ‘federal
funds purchased and repurchase agreements’ (8% a
year), which together make up a significant proportion
of total liabilities excluding non-bank deposits.
It would seem therefore that deposits are representing
a decreasing source of funding for US credit
institutions, with the consequence that credit
institutions in the US have had to diversify away from
the traditional business of deposit taking (into more
fee-based income sources). The fall in the attraction
of savings accounts and certificates of deposits as
consumer investment vehicles in the US has been
explained in the literature as a direct consequence of,
for instance, the increased efficiency in the payments
system, diminishing the need for transactions
accounts, and also as a result of the proliferation of
investment options in the last three decades 252 .
Looking at the proportion of deposits (of commercial
and savings banks combined) to GDP, table 11 opposite
reveals that while in 1980, bank deposits in the US
represented 54% of GDP, by 2000 that proportion
had fallen to 38%.
251 Therefore excluding credit unions.
252 “The Past, Present, and Probable Future for Community Banks”, 2004, De Young, William Hunter and Gregory Udell.
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