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

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Table 16: Evolution of the Return on equity (before taxes) in the EU, 1992-2003 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Belgium 5.7% 14.1% 13.2% 12.9% 15.3% 15.1% 14.8% 14.7% 20.5% 15.4% 11.3% 15.7% Denmark -21.0% 10.6% 0.1% 18.5% 16.1% 15.1% 14.6% 14.2% 15.2% 16.5% 15.7% 17.0% Germany 13.2% 13.6% 11.8% 12.6% 12.3% 10.9% 17.4% 9.2% 7.9% 5.1% 8.1% -0.2% Greece 23.1% 21.6% 25.9% 24.4% 16.5% 17.9% 19.3% 27.6% 19.2% 14.3% 9.8% 12.3% Spain 10.7% 3.8% 8.2% 9.2% 9.7% 10.6% 11.1% 11.4% 10.4% 9.3% 8.8% 9.5% France 6.9% 2.9% 0.5% 3.6% 4.8% 7.7% 9.9% 10.8% 12.1% 12.7% 11.3% 11.0% Ireland n.a. n.a. n.a. 20.2% 20.1% 19.0% 21.6% 18.1% 17.9% 12.3% 15.6% 15.2% Italy 9.8% 12.0% 4.3% 5.9% 8.0% 5.5% 13.2% 13.9% 17.6% 14.0% 10.9% 10.0% Luxembourg 11.2% 18.9% 20.9% 19.9% 22.3% 22.8% 24.7% 19.6% 20.5% 18.5% 12.4% 12.8% Netherlands 13.9% 15.9% 15.2% 15.8% 16.0% 15.6% 14.3% 17.9% 17.2% 15.2% 11.5% 16.0% Austria 6.9% 8.7% 7.9% 8.9% 9.6% 9.4% 9.5% 9.3% 11.3% 11.3% 6.9% 8.0% Portugal 8.8% 9.2% 7.4% 7.7% 7.7% 9.1% 7.6% 6.9% 8.8% 6.3% 5.4% 5.6% Finland -48.9% -28.4% -25.2% -7.9% 8.0% 15.2% 9.9% 15.2% 22.1% 67.4% 8.8% 14.5% Sweden 18.4% 4.5% 19.3% 21.5% 24.3% 11.6% 16.4% 15.0% 18.7% 18.7% 10.0% 12.7% United Kingdom 7.3% 19.3% 27.4% 28.6% 26.1% 26.2% 28.3% 30.2% 21.5% 20.1% 17.5% 21.7% EU Average n.a. n.a. n.a. 10.6% 11.8% 11.9% 15.2% 14.0% 14.1% 12.5% 11.0% 10.1% 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: ESBG calculations based on information from the OECD (Bank profitability, 2002 & 2004). Table 17: Evolution of the cost to income ratio in the EU, 1992-2003 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Belgium 68.3% 67.9% 71.7% 67.6% 65.7% 63.9% 63.5% 66.5% 59.9% 62.9% 67.8% 62.1% Denmark 81.4% 51.1% 72.5% 54.0% 56.9% 59.2% 59.8% 62.1% 59.5% 53.1% 54.3% 51.5% Germany 64.5% 62.4% 60.8% 63.8% 63.8% 64.1% 57.6% 67.8% 68.7% 69.9% 63.8% 72.6% Greece 61.0% 62.7% 59.5% 64.3% 68.2% 63.2% 59.3% 41.6% 53.3% 58.4% 68.2% 62.7% Spain 60.3% 59.7% 59.7% 63.2% 62.2% 61.4% 60.6% 63.1% 61.0% 55.5% 56.7% 54.3% France 66.8% 64.8% 71.3% 65.6% 69.9% 68.8% 67.7% 67.6% 66.0% 62.1% 64.7% 64.0% Ireland n.a. n.a. n.a. 59.3% 57.6% 58.3% 52.0% 51.7% 50.1% 55.7% 51.2% 50.7% Italy 65.6% 60.8% 68.4% 67.6% 66.7% 68.7% 61.0% 60.7% 56.0% 55.4% 59.9% 60.9% Luxembourg 39.4% 38.0% 45.0% 46.5% 46.5% 43.9% 39.3% 46.0% 45.1% 46.7% 39.8% 41.2% Netherlands 67.2% 66.6% 67.1% 67.3% 67.3% 69.2% 70.8% 67.9% 70.5% 69.6% 70.9% 67.2% Austria 64.0% 63.5% 65.1% 69.4% 69.1% 69.4% 67.9% 69.0% 66.9% 67.6% 70.0% 68.8% Portugal 53.5% 56.2% 61.8% 64.9% 64.3% 60.0% 55.4% 58.5% 59.1% 57.1% 61.5% 53.9% Finland 190.4% 136.4% 139.9% 112.2% 88.6% 73.4% 86.3% 70.7% 56.9% 37.7% 61.1% 50.1% Sweden 121.3% 108.0% 80.1% 71.1% 63.7% 77.2% 68.7% 73.6% 67.1% 64.9% 71.2% 64.5% United Kingdom 65.9% 63.2% 64.1% 63.7% 62.1% 60.9% 56.5% 54.6% 55.5% 57.4% 60.8% 56.8% EU Average 68.6% 64.7% 66.4% 65.4% 65.2% 65.2% 61.4% 63.3% 62.4% 61.6% 62.5% 62.5% 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). Sources: ESBG calculations on the basis of information from OECD (Bank profitability, 2002 & 2004). 96
5.3.2.2.2 Return on equity Average ROE in the EU increased from 10.6% in 1995 to 14.1% in 2000 (hitting a peak of 15.2% in 1998) and then fell every year since to 10.1% in 2003 (see table 16 opposite). Note that ROEs are considerably higher than the European average in a number of countries, especially in the UK. 5.3.2.2.3 Cost-income ratio The average cost to income ratio for EU banks has also generally followed a downward trend since 1992, as can be seen from table 17 opposite, with a high in 1992 of 68.6% and a low in 1998 of 61.4%. With regard to return on equity, the US has consistently exceeded the average ROE of the EU 15 by a significant margin, as graph 14 below demonstrates. However, the range of ROEs across Member States is wide and a number of countries, namely the UK and Luxembourg have achieved consistently higher ROEs than the US. Looking at the evolution of ROEs in the US and the EU, ROE has been relatively stable in the US since 1995, hovering around the 20% mark, while in the EU a positive trend in ROEs since 1995 turned into a downward trend from 1998 right up to 2003 (see graph 15 below). It would however be futile to attempt making sense of this evolution, given the volatility of ROEs at the level of individual Member States. 5.3.2.3 Comparison As can be seen from graph 13 below, net interest margins in the EU are significantly below those for the US. Note too that for both markets, interest margins have followed a downward trend over the years. 25% 20% Graph 14: Comparison of the RoE (before taxes) in the EU and the US, 1995-2003 Looking at the level of individual Member States, few countries in the EU have achieved net interest margins comparable to the US (3% or over) excepting for Italy in 1992 and 1993, Portugal in 1993, Denmark (over a 4 year period between 1992 and 1995, over which it achieved a top margin of 3.94%), and Spain in 1992, 1993 and 1994. None have achieved margins anywhere as high as the US in recent years. 15% 10% 5% 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Graph 13: Comparison of net interest margins in the US and the EU, 1997 – 2003 1997 1998 1999 2000 2001 2002 2003 ■ EU Average ■ US Average Source: ESBG calculations based on data from OECD for the EU and FDIC & NCUA for the US. ■ EU Average ■ US Average Source: ESBG calculations based on data from OECD for the EU and FDIC & NCUA for the US. 97
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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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4. REGULATION AND SUPERVISION COMPA
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Page 49 and 50: In fact, it should be mentioned her
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Page 53 and 54: Despite the trend towards the estab
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
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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 104 and 105: Furthermore, the average outstandin
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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
Page 130 and 131: The above fears can hardly be allay
Page 132 and 133: - ACH credits and debits: the stati
Page 134 and 135: 6.3.2.1.2 Financial intermediaries
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Page 142 and 143: Graph 19: Use of different distribu
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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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