Structural developments in the EU banking sector
The European Central Bank (ECB) is today releasing a report on structural developments in the EU banking sector. The report has been prepared by the Banking Supervision Committee (BSC) of the European System of Central Banks in the context of its activity of monitoring the stability of the EU banking sector, and as such complements the BSC's semi-annual macro-prudential analysis. The aim of the report is to provide an overview of the most relevant structural developments in the EU banking sector in 2001 and, to a certain extent, in the first half of 2002. The ECB intends to publish further such reports on a regular basis. The analysis is based on qualitative assessments by central banks and banking supervisory authorities and quantitative information stemming from several sources.
The report covers a large number of areas including the regulatory and market environment in which banks operate, banking structures and operations, structural changes in the overall banking risk profile, risk management systems and actions by public authorities. The main findings can be summarised as follows:
- Pressure to increase efficiency. Banks face growing competition as a result of factors such as deregulation, internationalisation and the pressure to create "shareholder value", requiring them to increase income and control costs. These objectives are pursued in various ways, including enhanced diversification of activities, intensified efforts to reduce costs, organisational streamlining and a more cautious approach to risk.
- Efforts in risk management. Given the volatility and poor performance of financial markets, legal and reputation risk have become more important for banks. Financial innovation and regulatory developments are leading to more sophisticated approaches by banks to their risk management. Further improvements in risk management techniques have been observed – especially in the areas of credit risk and operational risk – as banks have started to prepare themselves for the new regulatory framework for capital adequacy ("Basel II").
- Diversification of banking business and enhanced consumer protection. Increasing emphasis is being placed by the supervisory authorities on consumer protection issues. As banks increase their investment banking and asset management activities, so their customers become more exposed to market risk. Banks therefore find themselves having to cope with new issues relating to the sale of asset management products, the handling of complaints and questions of customer redress. The fundamental issue is the extent to which individual investors should take responsibility for their decisions, and the role of banks and authorities.
Overall, the structural trends identified in this report have enhanced the robustness of the EU banking sector, and thus increased its resilience in the face of the sizeable shocks experienced in the recent past.
The report can be downloaded from the "Publications" section of the ECB's website (http://www.ecb.europa.eu). Hard copies are also available free of charge from the ECB's Press and Information Division (Fax: +49 69 1344 7404).