Too many obstacles to banking mergers, says McCreevy[en] 

Financial sector cross-border mergers in the EU stand at 20% of all mergers in the sector – less than half the average 45% cross-border for other sectors. The impact of this, explained Mr McCreevy, is that the EU financial sector is in danger of being stuck in the ‘second division’ on the world market.

The findings the Commissioner outlined come from a Commission report presented to, and almost unanimously endorsed by, the EcoFin Council on 8 November 2005. 

The report was carried out further to a September 2004 Council mandate and is based on an open survey of market players. It sets out the survey conclusions and goes on to identify the obstacles which currently deter mergers in the sector. 

Three key areas

• Supervisory convergence 

Each member state has its own banking supervisors who operate to their own rules. Work is being done, led by CEBS , to foster co-operation and convergence. However, cross-border merged banks find this a particular problem as they have to comply with different regulatory requirements for each member state in which they operate. The costs of this can be high. The Commission will work towards building a more European focus amongst supervisors.

Article 16 of the Banking Directive is also a hurdle. It currently empowers banking supervisors to veto a merger if they are not satisfied as to the suitability of the proposed acquirer. The section is currently very broadly worded, giving supervisors wide discretion. The Commission plans to revise the directive, setting specific criteria on which such a merger can be opposed and requiring transparency of decision-making.

Revision will also be considered of provisions of the insurance directives and the markets in financial instruments directive (MiFid ) which impose similar restrictions.

• Legal obstacles

There are rigidities in member state legal structures which constrain cross-border consolidation. These include company law rules, employment legislation and taxation issues. All these elements increase the costs and so diminish the attractiveness of mergers.

• Retail market 

Consumer protection rules, which differ widely across the EU can cause barriers. The Commission has already tabled proposals on consumer credit (see LinksDossier). Also identified are issues of taxation and consumer reluctance to accept external products. Barriers in this area are especially relevant for smaller institutions.

Intra-EU investment 

The Commission also released an interpretative communication, ‘Intra-EU investment in the financial services sector’. This document reinforces the fundamental treaty principles of freedom of establishment and freedom of movement of capital and warns against the use of regulatory powers to fragment markets along national lines.