Cross-border bank deals can boost stability – ECB’s Villeroy

Governor of the Bank of France de Galhau attends a press conference after the Franco-German Financial Council meeting in Berlin
Cross-border banking mergers would not necessarily create “too-big-to-fail” behemoths and could contribute to financial stability, ECB governing council member Francois Villeroy de Galhau said on Monday.

European banking regulations put in place since the 2008-2009 financial crisis have discouraged banks from becoming too complex, Villeroy, the governor of the Bank of France, told a bank supervision conference in Paris.

Meanwhile, new European rules on winding down troubled banks aim to remove implicit government guarantees which Villeroy said had previously provided incentives for excessive risk taking.

“We are reaching the point in Europe where facilitating healthy and well-designed cross-border mergers could actually improve financial stability,” Villeroy said.

“It would make banks better able to diversify their risks, achieve economies of scale and become more efficient.

“And as we have strengthened the single supervision and resolution of significant institutions, we should not fear the ‘too-big-to-fail’ issue,” he added.

European banks have so far largely ignored calls to merge from some central bankers, who think that consolidation would make it easier to transmit monetary policy more evenly across the euro zone.

In private, senior bankers say that mergers are discouraged by ever-changing regulations, though some of the uncertainty has cleared since global financial supervisors last week reached a long-sought deal to harmonise bank capital rules.

Bankers are also concerned that buying a bank in another euro zone country could raise their capital requirements. But Villeroy said that the bloc should be considered as a single geographic area.
Source: Reuters (Reporting by Leigh Thomas, Editing by Sarah White)

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