Rumours abound of a return to large-scale mergers in Europe, with some major banks in the frame. But with politicians and regulators at odds, it looks unlikely.

Ten years since the collapse of Lehman Brothers and the onset of the financial crisis, large-scale mergers and acquisitions (M&As) are being discussed in Europe once more. But while there have been plenty of rumours about potential combinations, involving big European names such as Deutsche Bank, Barclays and UniCredit, actions have not yet materialised. Why is that?

Both the European Central Bank’s president, Mario Draghi, and its chair of the supervisory board, Danièle Nouy, have made known their support for more consolidation, highlighting the importance of further alignment of regulatory treatment of domestic and cross-border banking groups to fit with a single supervisor under the banking union.

Nevertheless, domestic regulators retain some crucial powers. Cross-border banking groups have to comply with local liquidity and capital requirements in each jurisdiction where a subsidiary is based, while lenders with domestic subsidiaries can get waivers from the national regulator. A proposal by the European Commission to allow waivers for cross-border groups was rebuffed by EU member states, and even a partial reduction of national requirements, which the European Parliament might have backed, did not win approval from national governments in the EU.

The roadblocks raised by politicians come just as the EU’s revised payment services directive to boost open banking further reduces the benefits of bank mergers within the union. Is there still a need to acquire another bank to gain exposure to retail customers in another EU country, if the same could be achieved through digital services? The answer could both be yes and no, depending on how long a bank is willing to wait until open banking opportunities take off, or how sophisticated a product range it was looking to acquire.

So until politicians have more trust in the work of national regulators, it would be unwise to hold your breath for a return to mega-bank M&A in Europe.

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