Lack of cross-border mergers shows Europe needs more integration: Bank of Spain

MADRID (Reuters) - The lack of cross-border mergers in Europe’s financial sector is evidence that the continent still has a long way to go in terms of market integration and diversification, the deputy governor of the Bank of Spain said on Wednesday.

“In my view, the lack of cross-border mergers can be partially explained by the over-capacity of the financial sector in Europe,” Margarita Delgado said during an event on the European Banking union in Madrid.

Delgado acknowledged cultural and regulatory obstacles were hindering the emergence of a truly European banking market and limiting, or even impeding, the free flow of capital or liquidity across borders.

She supported an end to “national ring-fencing supervisory practices which are detrimental to financial integration and, thus, limit the ambition of the Banking Union as a single jurisdiction.”

Delgado said benefits from synergies, potential cost-cutting and efficiency gains were mainly seen in mergers between institutions from the same country.

Andrea Enria, the head of the European Central Bank’s supervisory arm, also said at the same event that cross-border mergers in Europe and at a national level could be a useful tool at a time when the sector is struggling to make money from loans because of ultra low interest rates.

Delgado said the implementation of a common deposit insurance scheme in Europe would also contribute to making the European Union more stable.

“A fully fledged mutualised EDIS would have a strong impact on citizens’ trust; a greater degree of risk-sharing within the euro area would also help align financial responsibility with the pan-European decision-making process,” she said.

Despite calls from some European regulators for more market integration and completion of banking union, one important missing part is the creation of a common deposit insurance scheme.

Germany, the Netherlands and other northern European countries fear agreeing to a European Deposit Insurance Scheme (EDIS) would mean they could be burdened with repaying deposits in countries such as Italy, Greece or Portugal, where banks are vulnerable, often as a legacy of the sovereign debt crisis of 2010-2015.

Reporting By Jesús Aguado; editing by Jose Elías Rodríguez and Timothy Heritage