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The ructions can in large part be traced back to the 2008 crisis. So why the delay? The glib answer can be summarised in two words: cultural indecisiveness. The longer answer involves half a dozen interconnected facts:
European banks were slower to restructure. When the crisis hit in the US, a vast state-backed recapitalisation effort, the so-called trouble asset relief programme (Tarp), was organised within days. In Europe, the absence of strong, single-minded leadership compounded a mood of cultural and regulatory indecisiveness. Except for a few state bailouts, troubled banks limped on for years with weak management, limited capital and indulgent supervisors.
European banks were always weaker. Although banks globally have been hit by some common challenges since 2008, European groups have been laid far lower by them. Going into the crisis, European banks tended to have more bloated balance sheets and lower capital ratios than their US rivals.
Stricter regulatory standards on capital, liquidity and conduct have been harder for European banks to swallow. Not only are the new Europe-specific rules stricter than lax pre-crisis standards, some of them are also tougher than new measures in other countries.
Europe lacks a harmonised market. The absence of harmonised rules in areas such as market access and company insolvency, which the planned Capital Markets Union is supposed to address, means Europe is still far more fragmented than the US.
The relative weakness of European banks is disproportionately important to the EU economy because so many companies rely on bank lending. There is an oft cited statistic that only a quarter of European corporate finance stems from the capital markets, while in the US the figure is closer to three-quarters.
Europe remains mired in zero growth. And that, of course, is a vicious circle. Without stronger banks and markets, companies will find it hard to grow. And without growth, the financial system will stay underperforming.
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