Agustín Carstens, General Manager of the BIS, reviews possible ways to address market fragmentation at the global level and focuses on market integration within the euro area.
As is the case in other parts of the world, the banking sector in Europe faces challenges that can constitute structural obstacles for additional integration. For example, the persistently low level of profitability - most likely associated with the industry's excess capacity - does not favour the cross-border expansion of European banks but, more naturally, additional within-border consolidations seeking economies of scale.
In addition, the disruption posed by technological developments is generating uncertainty as to the industry's prospects and the sustainability of some traditional business models. That uncertainty - to a significant extent already reflected in banks' equity prices - does not help commercial banks' development of expansionary corporate strategies through regular mergers with, or acquisitions of, other traditional financial institutions located in foreign jurisdictions.
However, it is likely that over time technology will further increase the availability of all types of financial services on a remote basis, which could foster greater integration of the financial industry at both the global and the European level without requiring the physical presence of foreign players in the different domestic markets. That would in no way eliminate the need for deep regulatory reflection, but, arguably, it would have a completely different tone.
In his remarks, Mr Carstens has discussed cross-country cooperation as a desirable development to enable regulation to achieve a better social return by promoting more financial integration. In the future, what now looks desirable may become essential. In a context of de facto integration linked to blurring borders in the provision of financial services, close international cooperation will become an essential element of any regulatory framework aiming to protect the integrity and stability of the financial system.
Full speech on BIS
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