Europe Can Fight Fragmentation by Looking to Banks’ Brexit Plans

(Bloomberg) --

European banks bemoaning market fragmentation should take a page out of the play book used by global peers who set up units in the region after Brexit, according to their top regulator.

Global banks made their European Union operations more efficient by largely relying on branches rather than fully-fledged subsidiaries in different countries, according to Andrea Enria, who leads the European Central Bank’s oversight arm.

“This should provide food for thought for the boards of other banks,” he said. “Banking markets remain fragmented along national lines.”

European countries put up firebreaks after the financial crisis to prevent their taxpayers from being on the hook for losses in case foreign banks operating in their market were to run into trouble. Yet more than a decade later, those precautions are preventing mergers that could lift the depressed profitability of European banks.  

Enria, in an overview of remarks he will deliver to euro-area finance ministers next week, suggested they could speed up integration of the banking market by agreeing on a joint system for protecting deposits. He also reiterated a proposal he has made for facilitating the flow of liquid funds across borders.

Global banks have moved hundreds of billions of euros and thousands of employees to the euro area to retain access to EU clients after Brexit. JPMorgan Chase & Co. is among lenders to combine units in the bloc into a single legal entity to cut costs and reduce complexity, Bloomberg has reported.

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