Regulators Eye ‘Excess Capacity’ In European Banking System

In Europe, and specifically in banking, mergers – not for scale, but for efficiency?

To that end, Andrea Enria, the European Central Bank supervisor, said this past week that the European banking system is operating with excess capacity, and that efficiency might be spurred by mergers and acquisitions.

As the regulator said at a Lisbon conference, “The optimal size of the banking sector is hard to gauge, but it seems clear, though, that the European banking sector is still too large. So there is a need for consolidation.”

The mergers would help absorb excess capacity, said Enria, though such deal-making would not aim to simply create larger banks. Consolidation should happen amid mid-sized and lower-sized banks, he said, and would be not only about “cross-border mergers, but also local integration.”

Looking into Danske Bank

Also in Europe, the European Banking Authority (EBA) has drawn calls to improve its money laundering scrutiny. Those calls come in the wake of an investigation into the Danske Bank money laundering scandal.

As reported this past week, the EBA had rejected a draft report that pointed to four breaches of EU law tied to Danske Bank and supervision via Danish and Estonian authorities. The EBA had rejected the report, and had also voted to close the investigation. In a rebuke of that action, Valdis Dombrovskis, vice president in charge of Financial Stability, Financial Services and Capital Markets Union, said it was “disappointing” that the EBA didn’t act on the scandal.

Some Fines in the EU, Too

This is not to say there were no punitive actions on the Continent related to banking or money laundering. In Norway, the Financial Supervisory Authority fined Santander, the Spanish bank, $1 million for violations of that country’s anti-money laundering laws.

As reported, the violations took place at the Santander Consumer Bank based in Norway, centered on an electronic monitoring system that was meant to spot money laundering. As many as 1.6 million transactions – which were in turn tied to 300,000 customers – were not checked over a period spanning Oct. 30, 2014 to Dec. 6, 2018.

The bank was fined the equivalent of $1 million USD. It was reported that Santander checked all of the aforementioned transactions after being informed of the lack of oversight by the Financial Supervisory Authority. The bank said in a statement that “Santander Consumer Bank has fully cooperated with and kept the FSA fully continuously informed,” a bank spokeswoman said, according to the report. “The IT error was connected to the integration of old and new IT systems. Santander Consumer Bank has made several improvements to our IT systems and routines.”

Also in terms of individual fines, in Ireland, the central bank fined Wells Fargo 5.9 million euros, among the largest fines issued by the bank. That fine comes in the wake of five breaches spanning 2014 to 2019, and also touches on the bank’s failure to report capital positions. An examination of the capital position, according to the central bank and reports, illuminated “serious and systemic weaknesses” in Wells Fargo’s reporting.

The breaches and allegedly lax documentation come on top of billions of dollars in fines levied in the wake of scandals over sham accounts.