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The largest French central bank has asked Brussels to allow European subsidiaries of pan-European banks to have less capital, removing an obstacle that lenders see as a major obstacle to cross-border bank acquisitions in the region.
Francois Villeroy de Galhau, governor of the Banque de France, said Friday that European lawmakers could encourage further bank consolidation by relaxing the rules on capital reserves they must have.
His comments come as the issue of bank consolidation resurfaced in Europe – after almost a decade with no major deals in the sector – following merger negotiations between Deutsche Bank and Commerzbank in Germany. The Italian UniCredit is preparing a competing bid on Commerzbank if negotiations with Deutsche were unsuccessful.
"A useful solution for creating genuine pan-European banking groups could be to reduce the capital requirements of European subsidiaries while preserving their financial position through credible cross-border guarantees provided by the parent company, which could be triggered both by normal times and in times of crisis. Villeroy de Galhau said Friday in Bucharest.
"This would be based on the law of the European Union and would be enforced by the authorities of the European Union," added Mr. Villeroy de Galhau, one of the main candidates for the succession of Mario Draghi. to the presidency of the European Central Bank at the end of the year.
Greater room for maneuver by European authorities would make it more attractive for well capitalized European banks to acquire smaller or smaller competitors in other Member States.
Currently, banks' subsidiaries have to comply with globally recognized capital rules, which the supervisors say has prevented some of them from taking advantage of a strong parent company and have limited the consolidation of the sector during the banking crisis in Europe.
Analysts welcomed the move. John Cronin, Financial Analyst at Goodbody, said: "I think this would give a significant boost to cross-border consolidation in a European banking context."
Mr Villeroy de Galhau said that less stringent capital rules would be warranted, as more cross-border banking would mean greater risk-sharing between Member States.
A derogation from these global capital rules has in the past benefited from the support of the ECB, which oversees the largest banks in the euro area through its single control unit.
"The ECB is generally in favor of introducing an opportunity for a competent authority to derogate from the individual application of prudential requirements to a subsidiary whose registered office is located in a Member State other than that of the Member State. from its parent company, which is in line with the establishment of the MSU and the Banking Union, "said Mr Draghi in a legal opinion of November 2017.
However, governments and supervisory authorities in small EU countries have always hesitated to badume that subsidiaries in their territory will be able to rely on parent companies to help them in the event of a crisis.
They fear being left behind in a financial emergency – a risk highlighted by Lehman Brothers who withdraws funds from its London subsidiary shortly before its collapse in 2008. These so-called "host" countries fought with tenacity in Brussels to retain capital and liquidity rights in the banking units they supervise.
The ECB and others have argued that the creation of a banking union in the euro area makes this system obsolete, as banks are now supervised at European level. In response, some host countries report that the banking union project remains incomplete.
Proponents of efforts to further develop the banking union by creating a common bank deposit guarantee scheme argued that this measure would help rebadure countries that are reluctant to give up control.
Mr Villeroy de Galhau's remarks are part of a larger campaign to urge the European authorities to leverage Brexit to create a more integrated financial market in the rest of Europe. Union.
The Governor of the Banque de France reiterated his calls for the euro to become a more important global reserve currency.
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