13 October 2008

ECB report on EU banking structures

The report reviews the main structural developments and contains two special features on the incentive structure of the ‘originate and distribute’ model and the on a survey of EU banks on major risks on the year ahead.

The report reviews the main structural developments in the EU banking sector and contains two special features on the incentive structure of the ‘originate and distribute’ model of financial intermediation and the on a survey of EU banks on major risks on the year ahead.

 

The most important structural developments that took place include that the consolidation process as indicated by the decreasing number of credit institutions. A further noteworthy trend is the significant increase in the number of acquisitions by EU credit institutions of banks located in third countries, which had been larger than the respective figure for domestic deals over the past three years.

 

The special feature on the incentive structure of the ‘originate and distribute’ model presents the main developments before and during the financial turmoil and reviews the possible conflicts of interest, or misaligned incentives, between the key actors involved. Finally, the special feature considers various measures that could mitigate conflicts of interest in the ‘originate and distribute’ model, such as retaining ownership of some risk in structured finance transactions, reviewing remuneration schemes and improving the documentation for securitisation transactions.

 

The special feature on the survey of EU banks on major risks in the year ahead presents the findings of the fourth survey on banks’ perception of the main risks for the coming year, with financial markets as the major source of risks. Risks stemming from regulatory developments or from individual strategic developments were viewed by banks as the least important.

 

Press release

Full report

 

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