25 October 2006

ECB Report on EU banking structures

The ECB published its annual report on EU banking structures which reviews the main structural developments in the EU banking sector. It also contains two topical studies on the impact of an ageing population on EU banks and the changing structure of EU banks’ funding.

On the impact of ageing the ECB stated that “the changing demographic environment will most likely support the growing importance of non-bank financial products and institutional investors.” The report continues that “further pension reforms and efficiency gains from specialisation, combined with increasing demand for financial advice and asset management services from more sophisticated households, will thus likely increase competition between banks, insurance companies, pension funds and mutual funds.”

A shift in household assets from bank deposits towards investments with pension funds and insurers “may provide further motivation for companies to form large financial groups and/or for banks, insurance companies and mutual funds to cooperate more closely”.

The ECB acknowledged that reform of public pension systems and the shift from defined benefit to defined contribution schemes had “substantially increased households’ risk exposure”. Cooperation/cross-shareholdings between banks, insurance companies and investment companies may increase in the future and may partly shield banks’ income from the negative impact of increasing competition from nonblank financial intermediaries, the ECB states and continues that “regulation and supervision are increasingly likely to take into account the contagion risk between non-bank financial intermediaries and the banking sector, and the growing strategic importance of financial infrastructure.”

Press release
Full report

© Graham Bishop