Will open banking replace mergers? - Editor's Blog -

Merger talk is on the rise again in Europe. But with resistance from national regulators, Brian Caplen asks whether open banking, partnerships or digital routes are better ways to serve overseas markets and boost returns.

Deutsche Bank’s CEO Christian Sewing says: “The emergence of true European champions hinges on a unified regulation in Europe, a single financial market.”

UniCredit’s CEO Jean-Pierre Mustier has called for “more pan-European banks” of a larger scale. UniCredit has been cited as a possible merger partner for Société Générale and a tie-up between Deutsche and Commerzbank is regarded by many analysts as a matter of 'when' not 'if'.

With most major banks struggling to deliver decent returns on equity for shareholders, the thirst for mergers from CEOs and their shareholders is hardly surprising. European Central Bank officials are also supportive of bank mergers as a necessary step towards banking union.

But so far there has been little in the way of action, and a report in The Banker finds that a key barrier is, as Mr Sewing maintains, differences in the national regulations and tax codes of individual EU countries. In addition, there is push back from national regulators (under the influence of politicians) who insist on high liquidity and capital requirements for banking subsidiaries in their jurisdictions, mindful of the need for strong local capital in times of stress.

But could the whole debate get overtaken by the advent of open banking under the EU’s Payment Services Directive 2 and the march of digital in general? Do banks really need to have a presence in lots of different countries to do business there in a way that both satisfies the client and the regulator? Can fintechs and banks provide platforms and APIs that can pull services together and be accessed from anywhere? And how should regulators deal with this?

Cross-border M&A is high risk and has a poor track record. Maybe bankers, the European Central Bank and national regulators should be completely rethinking their approach to take account of the technological changes.

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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