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

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5.3.2 Efficiency of credit institutions 5.3.2.1 United States 5.3.2.1.1 Net interest margins Figures in table 12 on the following page which show the evolution of net interest margins in the US between 1992 and 2003 reveal that interest margins of credit institutions in the US have decreased to a degree, whether looking at aggregate data for the whole industry or at data by type of credit institution. The decrease in net interest margin is commonly explained by two main factors: increased competition in the sector, which reduces the banks’ margins both on the asset side and on the liability side, and the downward trend as regards interest rates during the considered period. In particular, in the environment of low interest rates experienced during the years 2001 – 2003, banks seem to have been reluctant to reduce their rates on some of their funding instruments, such as core deposits, in the same proportion as the decrease in interest rate. This has in turn affected their margins. 5.3.2.1.2 Return on equity Table 13 below shows that aggregate ROE for all types of US credit institutions for the period 1994- 2003 has remained relatively stable given that it amounted to 19.2% in 1994 and 20.7% in 2003. The trend has however been different for the different types of institutions: whereas the ROE has remained relatively stable for commercial banks, it has experienced an upward trend in the case of savings institutions and a decrease in the case of credit unions. There are also marked differences between categories of institutions in relation to their level of ROE. This contrasts with the situation as regards interest margins, where the levels were pretty similar for the different types of institutions. More concretely, while the average ROE of commercial banks and savings institutions is high, amounting to around 20%, the average ROE of credit unions lies at a much lower level, having been consistently lower than 10% since 1996. It should be noted here that despite the decrease observed between 1992 and 2003, the net interest margin of US banks remains quite high as compared to international standards. Table 12: Evolution of net interest margins in the US, 1992-2003 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Commercial banks 3.89% 3.89% 3.78% 3.71% 3.70% 3.64% 3.51% 3.50% 3.40% 3.35% 3.50% 3.27% Savings institutions 3.13% 3.26% 3.12% 2.89% 3.01% 3.03% 2.89% 2.88% 2.74% 2.94% 3.05% 2.97% Credit unions (CU) n.a. n.a. n.a. n.a. 3.96% 3.98% 3.82% 3.73% 3.77% 3.59% 3.63% 3.42% Total excl. CU 3.72% 3.76% 3.65% 3.55% 3.58% 3.54% 3.41% 3.40% 3.30% 3.28% 3.43% 3.22% US Average n.a. n.a. n.a. n.a. 15.37% 15.02% 12.73% 12.41% 10.99% 10.47% 9.42% 9.22% Sources: ESBG calculations based on FDIC and NCUA data. Table 13: Evolution of the Return on Equity (before taxes) in the US, 1992-2003 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Commercial banks 17.6% 21.2% 21.5% 21.4% 21.4% 21.8% 20.3% 23.1% 20.5% 18.6% 20.6% 21.9% Savings institutions 14.1% 13.6% 12.7% 13.7% 11.7% 15.3% 16.3% 17.9% 16.0% 18.2% 18.1% 19.9% Credit unions (CU) n.a. n.a. 12.4% 10.7% 10.0% 9.0% 8.3% 8.3% 8.6% 8.2% 9.4% 8.8% Total excl. CU 16.8% 19.6% 19.7% 19.9% 19.6% 20.6% 19.6% 22.3% 19.8% 18.5% 20.2% 21.6% US Average n.a. n.a. 19.2% 19.3% 18.9% 19.8% 18.8% 21.2% 18.9% 17.8% 19.4% 20.7% Sources: ESBG calculations based on FDIC and NCUA data. 94
5.3.2.1.3 Cost-income ratio The average cost to income ratio for US credit institutions for the period 1994-2003 has generally followed a downward trend, achieving a peak in 1994 of 65.2%, and a low in 2002 of 58.6% (see table 14 below). Note that the cost/ income ratios of US commercial and savings banks are comparable, and quite a lot smaller than those of credit unions. Part of the difference can be explained by the bigger weight of staff costs as a proportion of the general expenses in the case of credit unions. 5.3.2.2 Europe 5.3.2.2.1 Net interest margins As can be seen in table 15, since 1995 the trend has been downwards for the average EU net interest margin, with a fall every year bar one for the period 1995 to 2003. At the start of the period the European average net interest margin was 1.93%, while in 2003 it was 1.44%. Note that this downward trend is prevalent throughout the EU for the period 1992 to 2003, excepting for Greece, which has experienced a generally upward trend. Table 14: Evolution of the cost to income ratio in the US , 1992-2003 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Commercial banks 65.8% 65.2% 64.7% 63.2% 62.7% 60.9% 63.3% 60.7% 60.6% 59.9% 57.1% 57.7% Savings institutions 66.2% 65.5% 64.2% 61.4% 68.4% 59.1% 61.4% 58.4% 59.1% 59.5% 59.0% 58.0% Credit unions (CU) n.a. n.a. 76.2% 78.4% 81.0% 84.9% 86.2% 84.9% 82.8% 84.4% 81.9% 83.4% Total excl. CU 65.9% 65.2% 64.6% 63.0% 63.4% 60.7% 63.1% 60.5% 60.4% 59.9% 57.3% 57.7% US Average n.a. n.a. 65.2% 63.7% 64.3% 61.9% 64.2% 61.6% 61.5% 61.1% 58.6% 59.0% Sources: ESBG calculations based on FDIC and NCUA data. Table 15: Evolution of the net interest margin in the EU, 1992-2003 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Belgium 1.51% 1.35% 1.27% 1.23% 1.22% 1.07% 1.12% 1.09% 1.01% 1.00% 0.99% 0.99% Denmark 3.56% 3.93% 3.94% 3.17% 2.70% 2.33% 2.07% 1.86% 1.81% 1.95% 1.70% 1.62% Germany 2.07% 2.12% 2.18% 2.02% 1.89% 1.73% 1.56% 1.48% 1.31% 1.28% 1.39% 1.34% Greece 1.60% 1.57% 1.36% 2.09% 1.98% 2.25% 2.42% 2.70% 2.69% 2.67% 2.42% 2.72% Spain 3.63% 3.29% 3.06% 2.76% 2.61% 2.52% 2.40% 2.23% 2.18% 2.45% 2.24% 2.11% France 1.56% 1.33% 1.28% 1.17% 1.01% 0.85% 0.74% 0.80% 0.99% 0.80% 0.88% 0.90% Ireland n.a. n.a. n.a. 2.97% 2.53% 2.18% 1.88% 1.84% 1.58% 1.53% 1.45% 1.15% Italy 3.30% 3.05% 2.74% 2.93% 2.78% 2.45% 2.32% 2.25% 2.36% 2.59% 2.42% 2.24% Luxembourg 0.84% 0.77% 0.75% 0.70% 0.68% 0.63% 0.57% 0.60% 0.59% 0.65% 0.65% 0.63% Netherlands 1.83% 1.82% 1.90% 1.87% 1.88% 1.82% 1.73% 1.70% 1.56% 1.47% 1.51% 1.51% Austria 1.85% 2.11% 1.90% 1.72% 1.66% 1.52% 1.36% 1.23% 1.20% 1.24% 1.20% 1.17% Portugal n.a. 3.19% 2.63% 2.28% 2.30% 2.22% 2.10% 2.06% 1.84% 1.87% 1.77% 1.64% Finland 1.20% 1.65% 1.64% 1.78% 1.73% 1.78% 1.87% 1.75% 1.91% 1.73% 1.41% 1.39% Sweden 2.59% n.a. 2.68% 2.79% 2.20% 1.75% 1.40% 1.33% 1.23% 1.20% 1.29% 1.29% United Kingdom 2.62% 2.45% 2.35% 2.33% 2.15% 2.10% 2.06% 2.10% 1.95% 1.77% 1.73% 1.66% EU Average n.a. n.a. n.a. 1.93% 1.80% 1.66% 1.55% 1.52% 1.50% 1.47% 1.49% 1.44% Notes: The figures for Denmark refer to commercial banks and savings banks. The figures for Greece refer to commercial banks (which represent more than 80% of the total Greek assets). The figures for Luxembourg refer to commercial banks (which represent 88% of the total Luxembourg assets in 2001). The figures for Portugal refer to commercial banks (which represent 81% of the total Portuguese assets in 2001). The figures for Sweden refer to commercial banks and savings banks (which represent 67% of the total Swedish assets in 2001). The figures for the UK refer to commercial banks (which represent 52% of the total British assets in 2001). Source: OECD ("Bank Profitability", 2002 & 2004). 95
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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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Hermann Schulze-Delitzsch and Fried
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In contrast, building societies in
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The commitment of savings banks is
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Page 59 and 60: Although younger than CESR, both CE
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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
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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 98 and 99: Finally, looking at cost-income rat
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Page 110 and 111: 6.2.1.2.2 Regulatory framework over
Page 112 and 113: 6.2.1.3 Comparison 6.2.1.3.1 Size o
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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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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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