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The State of the Banking Sector in Europe

Listed author(s):
  • Dirk Schoenmaker

    (Duisenberg School of Finance)

  • Toon Peek

    (Duisenberg School of Finance)

This paper reviews the state of the banking sector in Europe. At the aggregate level, the empirical data suggest that the Baltics, Cyprus, Greece and Ireland, in particular, are hit by a strong decline in lending in the wake of the financial crisis. This deleveraging is mainly caused by a reduction in cross-border supply of credit. We also examine the capital position of the European banking system, using November 2013 stock market data. In the basic scenario to restore capital to a market based leverage ratio of 3%, EUR 84 billion of extra capital would be needed for the largest 60 banks. At the bank level, the top tertile of well-capitalised banks (with a market based leverage ratio well above 4%) continues lending. By contrast, the 2nd tertile of medium-capitalised banks (between 3 and 4%) and the 3rd tertile of weakly capitalised banks (well below 3%) show a strong decline in lending. Moreover, the market-to-book ratio is below one for these banks. The market thus gives a lower value to these banks. Our findings provide prima facie evidence of a credit crunch in Europe. Another fallout of the financial crisis is an increase, though very modest, of concentration in banking in the distressed countries (Greece, Ireland, Portugal, Spain and Italy). The enhancement of financial stability through (forced) M&As seems to come at the expense of reduced competition. L'état du secteur bancaire en Europe Ce document examine l'état du secteur bancaire en Europe. Au niveau agrégé, les données empiriques suggèrent que les pays baltes, Chypre, la Grèce et l'Irlande, en particulier, sont touchés par une forte diminution du crédit à la suite de la crise financière. Ce désendettement est principalement dû à une réduction de l'offre transfrontalière de crédit. Nous examinons également la capitalisation du système bancaire européen, en utilisant les données boursières de novembre 2013. Dans le scénario de base qui consiste à restaurer à 3 % le ratio de levier fondé sur la capitalisation boursière, 84 milliards d’euros de capitaux supplémentaires seraient nécessaires pour les 60 plus grandes banques. Au niveau des banques, le tiers supérieur des banques les mieux capitalisées (avec un ratio de levier fondé sur la capitalisation boursière bien au-dessus de 4 %) continue de prêter. En revanche, le deuxième tiers de banques de capitalisation intermédiaire (entre 3 et 4 %) et le troisième tiers des banques faiblement capitalisées (bien en-dessous de 3 %) montrent une forte diminution des prêts. En outre, le ratio entre valeur de marché et valeur comptable est inférieur à un pour ces banques. Le marché donne ainsi à ces banques une valeur inférieure. Nos résultats fournissent la preuve prima facie d'une chute du crédit en Europe. Une autre retombée de la crise financière est une augmentation, bien que très modeste, de la concentration du secteur bancaire dans les pays en difficulté (Espagne, Grèce, Irlande, Italie et Portugal). Le renforcement de la stabilité financière à travers des fusions et acquisitions (forcées) semble se faire au détriment de la concurrence.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1102.

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Date of creation: 27 Jan 2014
Handle: RePEc:oec:ecoaaa:1102-en
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