Banking Market: Does Renewed Competition to Deregulate Pose Risks for European Banks?

The announcement by US President Donald Trump of his intention to change banking regulation leads most experts to fear that he will considerably ease the rules for banks. Brexit may provide further impetus for deregulation. What are the risks of a downward competitive spiral for European banks? Jörg Rocholl, ESMT Berlin, reminds us of the burden on taxpayers created by the financial crisis, which proved a tough test not only of public finances, but also of trust in the market economy. In view of the signals from the USA, there is a deregulation threat that would inevitably create a greater risk of another crisis and increase the burden on taxpayers. Markus Demary, Institut der deutschen Wirtschaft Köln, believes that trade could possibly shift from the EU to the less heavily regulated USA. The EU should not, however, react to deregulation measures taken by the USA with more deregulation. It is necessary to retain high European standards in to order to stabilise European banks and shield them from possible new risks from the USA. Iris Bethge, Association of German Public Sector Banks, fears that the new US government and Brexit could lead to stronger deregulation. The EU and Germany should react to potential one-sided aims to deregulate with a “regulation breather”. Every additional piece of regulation that applies to European financial markets, but is not respected in other financial markets, weakens their competitive situation. The best response that Europe can make to the one-sided deregulation activities of the US administration is, according to Silvio Andrae, Deutscher Sparkassen- und Giroverband, and Martin Hellmich, Frankfurt School of Finance & Management, the European-wide consolidation of its own banking industry and the creation of integrated capital markets. This is why Europe needs to systematically press ahead with the banking and capital market union and finalise it. Federico Foders, former Institute for the World Economy, argues that a regulatory gap between Europe and the USA already exists, which put US banks at an advantage over their European counterparts. It is important for Europe that its path into the banking union is not interrupted, or even delayed, by a disorderly race to deregulate. Jan Ceyssens, EU Commission, notes that Europe has succeeded in significantly strengthening the regulatory framework conditions for the financial sector in recent years. In the European framework it is primarily important that the structural changes triggered in the financial sector by the United Kingdom’s exit from the EU should not be misunderstood by the member states as the beginning of a new wave of competition to offer the most attractive location conditions.