The dangers of banking concentration



The latest data on risk assessment between companies show a worrying scenario in the European Community framework. As stated in the latest survey by the European Banking Authority (EBA), carried out in the fall of 2021, almost 60% of banks consider or have considered at some point initiating a merger or acquisition process.

These data not only sound alarm bells by themselves, but when compared to previous years, a negative trend can be seen. Although in the same period of 2020 the percentage of banks that considered the possibility of mergers or acquisitions was 55%, in 2019, before the outbreak of the pandemic, the figure was below 30%, since that they considered that this type of movement would not have any impact on their profitability.

The advance of this trend is very worrying for the short and medium-term future of the banking sector in Spain. The reason? Bank concentration, as history has shown us, is always detrimental to consumers and businesses.

Any market, regardless of its type, should always have a sufficient number of operators for the existence of fair and necessary competition. The reduction of active operators is closely linked to this issue, since, over time, it leads to an increase in prices for customers, both individuals and companies.

In the EBA survey, responses were collected not only from large entities in the main European countries, but also from leading banks in Spain such as Santander, CaixaBank, BBVA, Sabadell or Bankinter. The results of these consultations reflect that the entities see in the merger or acquisition an alternative to improve their profitability in situations as complex as the current coronavirus pandemic.

On the banks’ side, they consider that the main obstacle to their consolidation is “the lack of business opportunities”, while, on the other hand, we cannot ignore the complexity and requirements of regulatory measures, which discourage any process of any concentration.

Ensuring that this does not happen is the responsibility of the public authorities in matters of competence. In the case of the European Union, the main supervisor, that is, the European Central Bank (ECB), relaxed in mid-2020, in the midst of the initial impact of COVID-19, the requirements for mergers and acquisitions.

The big change that came into force was the solvency requirements. Until then, only the one related to the bank with the largest capital was requested; however, with the new regulatory framework, the average of both entities involved in the operation was requested.

This new ecosystem was mainly used by Italy and Spain, where the merger of CaixaBank and Bankia in September 2020, which ended up closing throughout 2021, marked the beginning of these transactions. It was later followed by Unicaja and Liberbank, on the one hand, and the failed attempt by BBVA and Sabadell, later, although in this case new talks are not ruled out in the future.

Given this situation, I appeal to the responsibility of the competent public authorities to ensure that the banking sector does not reach the “quasi oligopoly” that we are approaching.

In all industries, whether in some latitudes or others, mergers of companies have been authorized under the pretext that these would translate into better and greater competitiveness and productivity of the resulting operators, which, in turn, would translate into the possibility of offering better prices to consumers.

However, it is important to remember that, in all cases, without exception, these mergers have not led to an improvement in prices for consumers, as promised, but have culminated in an increase in the margin of the resulting entity. through the generation of synergies and increase in final prices.

Looking to the future, the EBA itself, in another survey sent in September 2021, affirms that 80% of European banks foresee greater profitability, based on the increase in commission income and the continuation of the reduction in operating expenses. In short, considering that banking services are necessary for the population as a whole -unlike other services or products that citizens can do without- it is especially important to limit the concentration of banks.

Jordi Solé Tuyá is the executive director of Kreedit

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