The head chief executive of Germany’s biggest lender believes that for European banks to be able to compete with the world’s most valuable financial institutions, there is desperate need of fully formed banking union.
“We have to accelerate the banking union and revitalize the concept of a capital markets union in Europe,” Christian Sewing, CEO of Deutsche Bank, said on Friday at the European Banking Congress at Frankfurt.
Soon after the global financial crisis of 2008-09, setting up of a banking union in Europe was started in 2012 which was aimed to stop any future financial shocks and to segregate sovereigns from their banking systems. That project is yet to be completed because the European deposit insurance scheme has not been finalised yet.
“To create the banks which Europe needs we have to establish a larger market and actually a single market. This is necessary to facilitate both organic growth and consolidation among European banks, both of which are needed in the long run,” Sewing said.
“If we consolidate, if we get digitization right and, yes, I can’t miss it dear President Draghi, if we get a little support from the European Central Bank (ECB) with a normalized interest rate environment then European banks will have it easier again to grow and also compete globally,” he added.
Following the Euro sovereign debt crisis in 2011, the ECB had introduced ultra-low interest rates. The bank is however expected to start raising the rates by the end of summer 2019.
When rates of interest rise, it is good news for banks because they would then be able to lend money to investors at rates that can bring profits. But the current rate environment has limited the ability of the European banks to generate high profits.
There has been a spade of consolidation among a number of banks in Europe and the trend has been more prevalent in the countries of Italy and Spain as banks there seek to get ways to prevent getting bankrupt.
The Single Supervisory Mechanism has however been developed and implemented by Europe’s banking union. Under this system, some supervisory tasks that were earlier overseen by the EU financial system and the Single Resolution Fund are now conducted by the ECB.
The Single Resolution Fund is made use of as a last resort for bailouts of European banks that are on the verge of bankruptcy and the Fund is financed by euro zone banks.
But there has been some resistance from some members of the EU to the adoption of integration of their banking systems with other system throughout Europe because of certain discrepancies throughout the euro zone despite the fact that there has been a fresh evolution for Europe’s banking union.
It was “a pity” to witness that efforts to restore European integration had “failed to gain real traction” in recent months, Deutsche Bank’s Sewing said on Friday.
(Adapted form CNBC.com)