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EU: ECB policymaker calls bank consolidation “desirable”

 |  June 5, 2019

A European Central Bank (ECB) policymaker has called bank mergers in the EU “desirable,” but admits that it’s ultimately up to individual banks to decide if they would like to consolidate with one another.

“I don’t think of any special projects — this is not up to us; it is up to the banking industry to decide what could be the possible mergers,” said Francois Villeroy de Galhau, governor of the Bank of France, according to Reuters.

Villeroy de Galhau said mergers would make the sector more efficient and able to withstand volatility — a sentiment echoed by many ECB policymakers who have called for more consolidation in the region’s fragmented banking market. Yet, despite their support, the number of cross-border mergers has been on the decline in recent years, with bankers blaming current regulations that tie up capital in their European subsidiaries.

In response, Villeroy said that “a useful step could be to lower capital requirements of European subsidiaries, on the condition of safeguarding their financial position through credible cross-border guarantees.”

One merger that could possibly happen is between Deutsche Bank and Commerzbank. In March, Deutsche confirmed that it’s in talks with Commerzbank about a deal.

In a memo from Deutsche Bank CEO Christian Sewing, he said that while the company has been making progress during the last couple of months in its turnaround, it has also been assessing its opportunities as they come up. With a stated mission to remain a global bank with a big capital markets business, Sewing said it’s important to pursue options that make economic sense to the company. As a result, the board of Deutsche will review its options, including a deal with Commerzbank.

“It is our responsibility, and it is our duty. In doing so, we will keep the interests of the bank and all of our stakeholders in mind,” wrote the executive in the memo at the time. “At this point in time, there is no certainty at all that any transaction will materialize. Experience has shown that there may be a lot of potential economic and technical factors that could hinder or prevent such a step.”

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