The European Central Bank (ECB) and the lenders it oversees are running out of time in their push for rules to foster cross-border mergers.
European Union regulations need to change so consolidation makes financial sense, the ECB and firms say. But their shared urgency has been stymied by politicians from Germany and smaller states who want to make sure closer ties don’t expose them to excessive risks from other countries.
Euro-area leaders meet at the end of this month to discuss further integration of the currency zone, including the so-called banking union intended to remove barriers to expansion. They’re unlikely to make progress on crucial elements of the plan, including a common deposit insurance system. And they won’t have many more chances to hammer out a deal before next spring, when EU elections and a changing of the guard in Brussels mean lawmaking grinds to a halt until the end of the year.
“Banking union is not in place, and there are not yet enough benefits for banks to consider merging,” said Pauline Lambert, bank analyst at Scope Ratings. While some steps have been taken, thorny issues like deposit protection need to be tackled. “I am not sure there will be real progress on this front at the summit,” she said.
With mergers slowed to a trickle, banks have also cut cross-border lending. A big part of the problem is that member states are hesitant to scrap limits on banks moving cash and reserves between units. The ability to use capital and liquidity either side of a border would make mergers more attractive for banks, says Guntram Wolff, director of Bruegel, a Brussels-based think tank.