Could one of the many Covid-19 legacies be a re-animation of bigger ambitions among Europe’s small cabal of internationally active banks as bosses gain confidence while policy-makers get pushy?  

I ask only because Deutsche Bank’s CEO Christian Sewing and Andrea Enria, chair of the European Central Bank’s ( ECB’s ) supervisory board, gave speeches earlier in September at different events in different locations on consecutive days using very similar language in what looked like a choreographed and deftly staged expansionary political play.  

Both decried Europe’s waning financial firepower. Both took aim at Europe’s over-bearing banking regulation. Both cited the power of US banks, clearly their bêtes noires. Both sounded a clarion call to action. This is a very different Deutsche Bank; Sewing taking time out from the drudgery of restructuring to state that efforts by European regulators to ensure that banks no longer get big is a questionable course.  

It’s certainly true that the tone of the European banking narrative has improved somewhat. Surging revenues from trading, underwriting and advisory among large corporate and investment banks, provision write-backs as worst-case delinquencies have been avoided, restructuring programmes starting to bear fruit, reasonable capital headroom, and an economy in recovery mode have raised spirits and given senior managers at Europe’s largest banks the impression they can still be players as their clients ride the recovery in a borrowing and takeover binge.  

Standing right behind this less defeatist stance is an increasingly pushy public policy machine. The ECB has moved onto the front foot. It has shifted up a gear from encouraging and exhorting banks in its supervisory ambit to engage in cross-border M&A ( changing the rules to make deal-making more attractive ) to now goading and cajoling the bosses of the bloc’s biggest banks to unleash a new chapter in global adventurism.  

That’s the only way I can describe the ECB’s driving and unending persistence towards cross-border mergers – as per Enria’s recent speech – in an end-game that will at the same time cement their own power base.  

Frankly this story has become old. I marvel at how euro technocrats never seem to get tired of bleating on about a status quo that doesn’t really look like it’s going to change. Enria bemoans a European banking sector that remains, in his words, deeply segmented along national lines. He warns we’ll be “condemned” to a collection of national banking sectors unless we have a fully integrated EU banking sector.

In the eyes of sneering EU policy-makers, segmentation along national lines equals parochialism. But what vision do they carry in their heads that makes them believe so fervently that maintaining a bias to domestic banking is equivalent to some form of condemnation?

How do they see retail, consumer and small-business customers in a fully integrated sector interacting with banks in the real world and in the real day-to-day? Theirs is an especially weird vision given that the onerous banking rule-set that has been put in place – including strict restrictions on capital and liquidity transfers – has been built around national borders. This is one factor that undermines deal economics. The EU is not the US.

Thinking along national lines is natural for many consumers and business owners for whom a single market taken to its nth degree means the subversion of sovereign authority and a degree of extraterritoriality that just makes them nervous – regardless of whether or not they support the notion of the EU and other aspects of integration such as frictionless trade, internal migration or the single currency. In simple terms: people want to keep their money close to home.

[On a side note, it’ll be fascinating to see how encroaching digitisalisation changes this mindset. It could well be that a competent fintech provider with a neat set of digital tools but whose origins and country of registration lie elsewhere turns out to be less of an issue for a consumer or business customer in member State X than does banking with a bank with its headquarters in member State Y.]

Neither Enria nor Sewing want to wait for all of the pillars of banking union to be in place and for political dialogue to reach an end-point. Enria is calling for regulatory workarounds. Like intragroup waivers to rules applied at individual entity level to unlock trapped capital and liquidity transfers between legal entities in the same banking group beyond national borders. Like banks reviewing their cross-border organisational structures and switching to a reliance on branches to circumvent regulatory rules set at subsidiary level.

More generally, I was taken at how similar Sewing and Enria’s stances were – my italics and underlining:

Enria: “There have been times when policy-makers have driven change and supported leaps forward in European integration. But there have also been times when the private sector has seen business opportunities and structured their operations in ways that foster European integration.”

Sewing: “We can no longer afford to follow an evolutionary path [to banking and capital markets union]; we need a big leap forward … Europe needs a stronger banking and capital market to mobilise enough capital and channel it efficiently. It is up to the banks themselves.”

Enria: “The failure to achieve full banking sector integration in the euro area is detrimental because it denies economies of scope and scale to European banks that need to compete globally with US banks.”

Sewing: “We must finally make use of Europe's economies of scale. It cannot be in our [read: my] interests if global banks have their headquarters outside Europe. In an increasingly fragmented world dominated by national interests, we would make ourselves even more dependent on US banks; a strategic mistake.”

Let’s hope they got a combo deal on the speech …