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Banking Union Progress Crucial for EU Mergers, German Bank Leader Says

By  |  October 28, 2024

In recent remarks, Heiner Herkenhoff, CEO of the Association of German Banks, emphasized that completing the European banking union is a critical step for enabling cross-border mergers within the EU. According to a Yahoo News report, Herkenhoff underscored that only through a fully integrated single market for financial services can European banks maximize the efficiencies and synergies from mergers. This, he added, would provide the necessary framework for a more resilient and competitive European banking landscape.

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    The EU banking union was initially developed following the global financial crisis, aiming to centralize supervision of significant lenders under the European Central Bank (ECB). Despite these objectives, progress has been slow, with challenges remaining, particularly in establishing a joint deposit protection scheme, according to Yahoo News. Policymakers, however, maintain that integration is crucial, as it would streamline the free movement of capital and liquidity within the eurozone, enabling banks to better serve the economy and compete on a global scale.

    “If politicians really want to promote meaningful cross-border mergers in Europe, they need to strengthen the European single financial market,” Herkenhoff said in an interview with Reuters. He noted that the merger advantages banks seek can only be fully realized when regulatory barriers within the eurozone are dismantled. During his interview at the International Monetary Fund and World Bank’s annual meetings in Washington, he further emphasized that a successful banking union could enhance the appeal of cross-border mergers by reducing complexities and risks associated with regulatory differences.

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    Herkenhoff’s comments come amid growing concern among German officials regarding the potential acquisition of Commerzbank, a state-backed German lender, by Italy’s UniCredit. The proposed takeover has stirred apprehension within Berlin, where officials are wary of a foreign-led merger of a key national bank. However, the ECB and other European regulators argue that cross-border consolidation would benefit the eurozone by creating stronger institutions that can compete with U.S. banking giants, per Yahoo News.

    In addition to advancing the banking union, Herkenhoff highlighted the need for progress in the capital markets union, which he identified as essential to financing Europe’s shift towards green and digital economies. “If we want to rebuild the economy, we need a strong capital market and a capital market union,” he remarked. He pointed to the potential of the securitization market as a tool for unlocking capital, noting a proposal from the sector for regulatory adjustments currently under evaluation by the European Commission.

    Particularly for Germany, where many medium-sized businesses rely heavily on credit financing, expanding the securitization market could alleviate bank balance sheet constraints, Herkenhoff said. This, in turn, would enable banks to extend more loans to small and medium-sized enterprises, fostering growth in a critical segment of the German economy.

    According to Herkenhoff, completing the European banking union and making strides in capital markets integration are not just regulatory goals but strategic imperatives to strengthen Europe’s financial system in a rapidly evolving global market. As European policymakers convene to address these issues, their decisions could shape the future of banking integration and the region’s economic resilience in the years to come.

    Source: Yahoo News