Europe seeks a banking union to compete with the US

The CEO of Italy’s UniCredit bank wants to mount a cross-border takeover of Commerzbank, a German rival. Unicredit’s stake would be larger than the German government’s, and Chancellor Olaf Scholz says this makes it an “unfriendly attack”.

So what? It’s a fractious time for European banking. CEOs of major lenders gathered in Davos this week have been loudly expressing

• envy at the prospect of a boom in mergers and acquisitions in the US under Trump;
• doubt in the sector’s collaborative efforts to get to net zero; and
• frustration at plans for banking and capital markets unions that have taken over a decade to complete.

Andrea Orcel, UniCredit’s CEO, once wrote a thesis about hostile takeovers and admits his bid for Commerzbank was made in the interests of his shareholders. But he argues it also “put broader EU convergence and the future of the single market on the table”.

27-ball pool. Ursula von der Leyen, president of the European Commission, said this week that instead of 27 national jurisdictions, companies should operate under a “28th regime”, with a single framework of corporate law, insolvency, labour law and taxation. Prizes for the taking include

• €300 billion in savings invested abroad per year for want of better investment opportunities in Europe;
• €1.4 trillion in savings held by Europeans compared with €0.8 trillion held by Americans; and
• up to 0.8 per cent added to eurozone GDP, due to lower loan losses, consolidation and economies of scale.

Easier said than done. Scholz’s intervention over Commerzbank shows that economic nationalism in Europe remains a potent force. It indicates a deep anxiety in German politics that if the merged bank failed, taxpayers would be on the hook to bail it out.

But Christine Lagarde, who as president of the European Central Bank has final say on the deal, said cross-border mergers were in her opinion “desirable”.

Burn the red tape? Deregulation was already happening in the EU in the guise of “competition”. Trump’s arrival has stoked the fire.

In November, von der Leyen promised an “omnibus” of reforms to cut reporting requirements and simplify rules on sustainability – many of which she introduced in her first term. There’s been a predictable chorus of voices from the Swiss Alps pushing her to go further. They include:

• ING’s Steven van Rijswijk, who said there are “too many banks in Europe”;
• UBS’s Sergio Ermotti, who said the fact the new council was unlikely to add more banking regulation was an achievement in itself; and
• Commerzbank’s Bettina Orlopp, who said the EU should reconsider implementing the Basel III rules, which require banks to raise capital requirements.

The Bank of England has already delayed the Basel changes by a year, citing uncertain commitment from the US. Trump may also roll back parts of the 2010 Dodd-Frank law, which increased regulation to avoid another 2008-style implosion.

Risk appetite. A worldwide slide towards fewer rules isn’t a given. But European banking shares have dropped 10 per cent since early 2010, while US lenders’ have more than tripled. In that context it’s hard not to see the appeal of a loosening that creates supranational banks and deep pools of capital able to compete with Wall Street.

What’s more… Since 2008 the landscape has changed. Financial institutions are mainlining AI into their operations, geopolitical challenges are rife and 2024 was the first year to pass the 1.5C warming limit. A banking union built to withstand those tests can’t come soon enough.