Why a European “Banking Union” Would Shake Up US Financial Giants

American financial giants like JPMorgan Chase and Citibank may have another global adversary to worry about in the not-so-distant future.

European banks like UniCredit, Societe Generale, Banco Santander, Deutsche Bank and the rest are growing tired of the current global financial landscape.

The long-term solution: a merger.

Size Matters

While it’s true that David can defeat Goliath, another Goliath would have a much bigger (and faster) chance at victory. And this age-old struggle between European and US banks greatly resembles the ancient biblical fight.

JPMorgan Chase is currently worth $377 billion. In contrast, the biggest European bank, Banco Santander has a market value of $92 billion. Compared to Chase, it almost looks like a small business. Almost.

Because size matters, especially in the world of global finance. Christian Sewing, the CEO of Deutsche Bank summarized the complaints of European banks this way: “In times of ever-deepening geopolitical tensions, do we want to leave the important allocation function of the banking system largely to foreign institutions?”

This is a polite way of saying that European banks are pissed off with the overwhelming influence of US financial institutions on the global financial market, resulting in their painful dependence on American banks.

Regulatory Dead-Ends

However, Chase & Co have nothing to fear, for now. The European banking system isn’t quite ready to tackle the challenge of creating a worthy adversary in the short term.

Although Societe Generale and UniCredit are amidst talks of merging, they have been doing just that: talking. For more than a decade.

Currently, it’s unlikely that a deal will be reached within the next 18 months. And even if it was, union between the two banks would result in an institution with a market value of $74 billion. Not exactly in JP Morgan’s league.

The European banking system is plagued by fragmentation and national regulations. Although there is a common European bank regulatory agency, it has to share its powers with national central banks.

And on top of that, other key elements of a harmonized European financial system, like a single deposit insurance system, are still missing.

It’s Political

After the financial crisis of 2008 that led to a subsequent euro-crisis in 2010-12, political push to create a European banking union became stronger. However, the 19 member states of the Eurozone are not completely in agreement about how to proceed.

Political talks about a European banking union continue, but participants are not optimistic about the outcome. According to German Chancellor Angela Merkel, the possibility a joint European deposit insurance was “in the distant future.”

It seems that European banks won’t be able to diminish the global influence of US financial institutions in the near future. However, this doesn’t mean that there’s no alternative to US banks, at least when it comes to global business-to-business payments.

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