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A report for the European Parliament shows that banking remains dominated by national champions, especially in the large countries. But the authors don’t identify the real culprits behind the failing banking union. Let’s find out what’s really holding back the formation of pan-European banks in another episode of the Finrestra podcast.
This episode is based on a report by three authors at Bruegel, a think tank in Brussels: Giulia Gotti, Connor McCaffrey, and Nicolas Véron. Their report is titled Banking Union and the Long Wait for Cross-Border Integration. I’m going to put a link in the description of this podcast if you want to read the whole report. They cover a lot more than I’m going to talk about. For example, they study the ownership of government bonds at European banks, which was quite relevant during the banking crisis [I meant the European debt crisis] in 2011 or 2012. But it’s something that doesn’t interest me as much. Instead, I want to use their report to talk about the structure of banks in the eurozone and why there aren’t more banks active across Europe, not just in their home countries.
One of the interesting figures in the report—and there are several—looks at the total banking assets in each country within what is called the banking union. Just to be clear, the banking union includes countries that have single supervisory oversight of their larger banks by the European Central Bank (ECB). The ECB is responsible for the euro area, so the banking union covers all 20 countries using the euro, plus Bulgaria. Bulgaria is included because its currency is pegged to the euro, effectively having a fixed exchange rate, and many of its banks are controlled by banks in the eurozone. This makes Bulgaria’s inclusion in the banking union reasonable.
If you look at banking assets by country, you’ll see that the countries with the largest banking sectors are France, Germany, Italy, Spain, and the Netherlands. These are also the five biggest countries in the euro area, both economically and by population, so this makes sense.
However, I do have a comment on the data used in the report. They use data from The Banker, a publication. From my past work on financial geography, I know that datasets on European banks can vary in how they handle Luxembourg. In this report, Luxembourg’s banking assets are listed as about half a trillion euros, but in reality, they are closer to one trillion. This discrepancy is significant. While this might not affect all countries, it’s something to keep in mind. That said, because the authors used a single dataset, the data quality issues should be consistent across countries, allowing us to identify trends and proportions in Europe.
Aside from the fact that France, Germany, Italy, Spain, and the Netherlands have the largest banking systems, the report also highlights that these countries’ banking systems are dominated by large domestic players. Germany is an exception because it also has many cooperative banks like Volksbanken, Raiffeisenbanken, and Sparkassen, which are typically local banks alongside the bigger ones.
I’ll come back to the smaller countries in the banking union shortly. Another interesting point in the report is the distribution of assets across the 10 largest banking groups in the eurozone. Remarkably, five of the 10 biggest banks in the eurozone are French. The best-known French banks outside of France are BNP Paribas, Crédit Agricole, and Société Générale. These banks also have significant activities outside France. The other two French banks in the top 10 are BPCE and Crédit Mutuel, which are groups of smaller cooperative banks mainly active within France. Alongside these French giants, the top 10 includes Santander from Spain, ING from the Netherlands, Deutsche Bank from Germany, and two Italian banks: Intesa Sanpaolo and UniCredit.
Looking at domestic versus international assets, only three of the 10 largest banks in the report have more than half their assets outside their home countries. Santander is the biggest, with significant activities in the Americas (Brazil, Chile, and the U.S.), the U.K., and Poland. ING, based in the Netherlands, is also active in Germany, Belgium, Poland, and other countries. UniCredit, while second-largest in Italy after Intesa Sanpaolo, has substantial operations in Germany and several Eastern European countries. If its bid for Commerzbank succeeds, Germany could account for more than half of UniCredit’s activities.
Despite these examples, the report’s analysis has some limitations. For instance, it attributes all of Deutsche Bank’s U.K. branches to Germany, which might not fully reflect its international revenue sources. Revenue, not assets alone, shows where banks truly operate. For example, while about 80–90% of Deutsche Bank’s assets are attributed to Germany, only about a third of its revenue comes from Germany. The rest is generated in markets like the U.S. and the U.K.
This discrepancy shows why it’s not enough to look at the top 10 banks to understand the European banking system. For example, in France, the big five dominate over 90% of the market. In Germany, the picture is more fragmented, with large domestic banks, Landesbanken (state-owned regional banks), and cooperative banks. Less than 10% of the German market is controlled by foreign banks, mainly UniCredit and ING, while about 15% is controlled by non-EU banks, such as JP Morgan and Goldman Sachs, due to Frankfurt’s role as an international financial center.
In Italy, the market is dominated by Intesa Sanpaolo and UniCredit, with mid-sized banks like BPER and BPM also playing a role. Foreign banks, especially French ones like BNP Paribas and Crédit Agricole, account for more than 10% of Italy’s market. Spain, on the other hand, is dominated by domestic players like Santander, CaixaBank, and BBVA. The Netherlands has a similar structure, with over 85% of the market controlled by ING, ABN Amro, and Rabobank.
Outside the “big five,” the dominance of national champions is less evident. For example, in Belgium, domestic players like KBC and Belfius control less than 50% of the market. The rest is dominated by foreign banks like BNP Paribas Fortis and ING. In smaller eurozone countries, foreign banks play an even bigger role. In the Baltics (Lithuania, Latvia, and Estonia), Swedish banks like Swedbank and SEB dominate. In Central and Eastern Europe, UniCredit and Intesa Sanpaolo are significant, along with Austrian banks like Erste Group and Raiffeisen Bank International, Hungarian OTP, and Belgian KBC.
This is why you cannot just look at the 10 biggest banks, and also, it’s not a good idea to analyze European banks by only looking at the eurozone or the banking union. If you expand your scope and look at the entirety of the EU, you’ll notice that outside of the big five euro countries, the banking landscape is actually quite diversified and internationalized, with a lot of foreign ownership.
The largest economy outside of the banking union is Poland. Although the largest two banks in Poland are domestic, a significant portion of the banking system is foreign-owned. For example, Santander is present there, along with German Commerzbank and French BNP Paribas, which are significant players in the Polish banking market. As always, when you look at EU data, you should be aware that the EU is much more than just the eurozone or the big four or big five countries.
Another caveat is the Nordic region. Sweden and Denmark still have their own currencies; they don’t use the euro. In these two countries, Finnish-based Nordea is a significant player. In the Nordic region, you see foreign ownership, which is not as common in countries like France and Spain.
Another deplorable issue in EU research is the lack of consideration for Brexit. The UK is no longer in the EU, but it would have been instructive to see how diversified or internationalized the banks are in the UK. Retail banking in the UK is primarily British, with some exceptions like Santander. However, the banking system as a whole is very internationalized. London hosts many big American investment banks and almost every significant global bank, a presence not found even in Frankfurt. It would be interesting to contrast the banking union with a country like the United Kingdom.
Now, moving on to the question: Are we making progress towards a more integrated banking market in the banking union? When I say “we,” I mean the European Union or policymakers in Brussels. This brings me to the first chart in the European Parliament report, which is also the most damning. It shows euro area bank mergers and acquisitions based on the total assets of the banks acquired. The chart reveals two distinct periods: the late 1990s up to the banking crisis of 2008, and the period after 2008.
In the first period, there was a lot of M&A activity, both domestic and international. For example, the EU’s biggest bank, BNP Paribas, emerged from the merger of French banks BNP and Paribas. Italy’s largest bank, Intesa Sanpaolo, resulted from the merger between Intesa and Sanpaolo. Another major cross-border merger was BNP Paribas acquiring Fortis, which made BNP Paribas Fortis the largest bank in Belgium. Since 2008, however, M&A activity has mostly been limited to domestic consolidation. Examples include CaixaBank merging with Bankia in Spain and Intesa Sanpaolo acquiring UBI Banca in Italy.
The decline in cross-border M&A has obvious reasons. If you’re already active in a market, acquiring a competitor makes sense to reduce costs. Banks have also focused on core activities and left certain countries or activities to competitors. Another factor is regulation. The 1990s and early 2000s were lightly regulated, which encouraged M&A. After the financial crisis, regulations became much stricter, reducing M&A activity.
One reason identified in the report for low M&A activity is low stock prices. However, the authors don’t explore the root causes of these low prices. The weak EU economy, low demand for loans, and bad loans on balance sheets contributed, but I argue that national and EU policymakers share the blame. The eurozone could have achieved much higher growth, which would have improved bank stock prices. Additionally, the ECB’s monetary policy also played a role. For a long time, ECB interest rates were zero or negative. When inflation surged and the ECB finally raised rates, banking stocks exploded. If the ECB had raised rates earlier, banks would have been more profitable, leading to more M&A activity. Instead, the ECB and others gaslight banks by asking why there isn’t more integration and consolidation.
Another issue is the ownership structure of European banks. Cooperative banks like BPCE and Crédit Mutuel in France, and Rabobank in the Netherlands, are not listed on the stock exchange. Instead, their shares are owned by millions of cooperative retail clients. These clients are not interested in high returns, so cooperative banks focus on domestic markets rather than foreign expansion. Moreover, cooperative banks are harder to acquire because decisions require agreement from millions of owners.
Government ownership is another problem. Many banks bailed out during the financial crisis remain state-owned. For example, Belfius in Belgium is a remnant of Dexia. Despite over 15 years since the crisis, the Belgian government still owns Belfius. The same is true for Commerzbank in Germany and ABN Amro in the Netherlands. When foreign banks attempt acquisitions, politicians often block them, citing national interests. This economic nationalism undermines the EU’s goal of a single banking market.
In conclusion, the EU’s banking union faces significant challenges. While the European Parliament report provides valuable insights, addressing root causes like low profitability and excessive government ownership is crucial. Privatizing government-owned banks and letting the market play out could help. Thanks for listening! My good intention for 2025 is to make the podcast weekly. I’ll upload episodes to Spotify and podcast platforms first, followed by YouTube with a few visuals. YouTube won’t have animations, as weekly episodes might be less polished. However, I’ll create fully scripted videos occasionally. Subscribe if you enjoyed this episode. See you next time!
