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

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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. 88
100% Graph 8: Structure of the liabilities in the US, 1992 – 2003 (in %) – FDIC insured institutions 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 ■ Non-bank deposits ■ Interbank deposits ■ Federal funds purchased & repurchase agreements ■ Trading liabilities ■ Other borrowed funds ■ Subordinated debt ■ All other liabilities Source: ESBG calculations based on FDIC data Table 11: Different indicators of financial development in 1980 and 2000 1980 2000 Bank loan Stock Number Bank loan Stock Number private market Equity of private market Equity of sector Deposits capital issues companies sector Deposits capital issues companies Average Continental Europe 0.601 0.647 0.078 0.020 34.422 0.937 0.930 1.046 0.322 27.530 United Kingdom 0.276 0.280 0.380 0.040 47.220 1.320 1.069 1.840 0.149 32.370 United States 0.354 0.540 0.460 0.040 23.110 0.493 0.379 1.549 0.207 25.847 Average Anglo-American 0.315 0.410 0.420 0.040 35.165 0.907 0.724 1.694 0.178 29.109 Notes: Bank loan to the private sector is the ratio of claims on private sector of deposit money banks and GDP. Deposits to GDP is the ratio of commercial and savings bank deposits and GDP. Stock market capital to GDP is the aggregate market value of equity of domestic companies divided by GDP. Number of companies to population is the ratio of number of domestic companies whose equity is publicly traded in a domestic stock exchange and the country’s population in millions. Equity issues to GFCF is the ratio of funds raised through public equity offerings (both initial public offerings and seasoned equity issues) by domestic companies to gross fixed capital formation. Source: "The transformation of the European financial system", ECB, October 2002 (IMF and Rajan and Zingales (2003a)). 89
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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
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3.2.2.2.2.2 Ownership and corporate
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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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