Bank mergers desirable, but up to them to decide on tie-ups: ECB’s Villeroy

June 4, 2019

PARIS (Reuters) – ECB policymaker Francois Villeroy de Galhau said that while consolidation within the euro zone’s banking sector was desirable, it was up to individual banks to decide on which tie-ups to pursue.

Villeroy, who is also head of France’s central bank, has long called for cross-border consolidation, which he says would make the sector more efficient and resilient to shocks.

Some other ECB policymakers are also favorable to more consolidation in the euro zone’s highly fragmented banking market, which they say would make their monetary policy more potent through a better transmission to business and consumers.

While describing mergers as “desirable”, Villeroy refused on Tuesday to be drawn on concrete possibilities, when asked about the topic at a FT banking and finance conference in Paris.

“I don’t think of any special projects, this is not up to us, it is up to the banking industry to decide what could be the possible mergers,” said Villeroy.

The number of cross-border mergers has fallen in recent years with bankers saying that current regulations tie up too much capital in their European subsidiaries for cross-border mergers to make sense.

Villeroy said it was important to prevent ring-fencing on a national basis within cross-border banks, because that stops them from managing liquidity and capital at the group level, which could be dangerous in a crisis.

“A useful step could be to lower capital requirements of European subsidiaries, on the condition of safeguarding their financial position through credible cross-border guarantees,” he said.

(Reporting by Leigh Thomas; Editing by Sudip Kar-Gupta)

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