EU: ECB head advocates bank consolidation

European Central Bank Supervisor Andrea Enria said that the banking system in Europe is operating with excess capacity, and that there should be some mergers to help with efficiency, but not to create bigger institutions, according to a report by Reuters.

“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,” Enria told a conference in Lisbon. “So there is a need for consolidation.”

Enria also said consolidating “can help to mop up excess capacity.” Enria talked about the size of banks, as well.

“However, this is not about creating ever-larger banks. It is about more efficient banks, and the banking sector needs to be diverse in terms of dimension,” he said.

He added that in some particular cases “the room for consolidation is particularly relevant in the mid-size and lower-size of the scale.”

Managers and shareholders should be the ones who decide on consolidation, not regulators, he said, “but there is an impression that excess capacity is still there.” He clarified by saying, “This is not only about cross-border mergers, but also local integration.”

In other European banking news, the European Banking Authority (EBA) recently faced calls from the financial regulation head in Europe to improve its money laundering safeguards after opting not to pursue an investigation into the Danske Bank money laundering scandal.

According to The Financial Times, the draft report that the EBA voted to reject pointed to four breaches of EU law in how Danske Bank was supervised by Danish and Estonian authorities. It made recommendations for follow-up action for both countries, but the EBA decided against the report and voted to close the investigation.

That didn’t sit well with some regulators, including Valdis Dombrovskis, vice-president of the European Commission responsible for financial services policy. He told the news outlet that it was disappointing the EBA didn’t act on one of the largest money laundering scandals to rock Europe. He called for legislation that would change how that agency makes decisions.