European banks need regulation reset to catch U.S. rivals, Botin says

September 30, 2021

MADRID (Reuters) – Banks in Europe need more dynamic regulation to enable them to improve their profitability and catch up with their peers in the United States, the head of European Banking Federation (EBF), Ana Botin, said on Thursday.

Europe’s banks have tended to lag their U.S. rivals in terms of valuation and profitability. They have been slower to overcome problems left over from the financial crisis a decade ago and the European banking industry remains fragmented.

“Good regulation, proportionate, flexible and dynamic regulation is the route to high standards and growth. If we don’t get the balance right, we will not get the investment in the European economy all of us here want,” Botin told a European Banking Summit hosted by the EBF.

Banking capital buffers in Europe have been much tougher than in the United States, where banks are more easily able to capitalise on the U.S. domestic market of more than 300 million people.

The European Central Bank (ECB) became the single supervisor for the main banks in the euro zone in 2014, but Europe’s banking landscape remains fragmented when it comes to serving customers. Cross-border deposit transfers, for instance, are not allowed.

The completion of a full-scale banking union and agreement on a common deposit guarantee insurance scheme are also pending.

Botin, who is also the Executive Chairman of Spain’s Santander, the euro zone second-biggest lender in terms of market value, said a faster implementation of regulation would also help European lenders.

“Profitability is the first line of defence and we do need to see further progress in European banking market integration,” Botin said.

“Overall, we should ask ourselves why we have lower profitability than banks in the United States, where new rules are adapted more quickly, with more developed capital markets, with a single much larger market than we have,” she said.

Botin added that a “truly” European single market for banks, eliminating the many exiting barriers to cross-border business was needed and “crucially important”.

Santander chairman also said that lenders had to be able to compete on equal basis with both non-European banks and companies “acting like banks.”

(Reporting by Jesús Aguado and Emma Pinedo; editing by Jane Merriman)

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