Impact of European Banking Regulation on Bank Profitability

Extract

[...] Fintechs are taking an increasingly large place. However, while these companies offer digital solutions that are of interest to banking institutions, they are not necessarily banks. Some fintechs have become players in this world insofar as they had only technologies useful for modernizing payment instruments and, in general, banking services. We find them in daily solutions and this raises interesting regulatory questions. [...]

[...] These companies, filled to the brim with fresh money, thus deposited a good part of it at SV Bank, which was of medium size. However The Trump administration downgraded several major US banks to below the threshold at which they would be considered systemically important. SVB fell below that threshold. It was therefore part of the banks subject to relaxed prudential regulations. In France, the rules are the same for the most part of banks. That isn't not the case in the United States of America. [...]

[...] - The investment banks then packaged these mortgages into financial products multiple (RMBS, MBS, ABS, CDO?) in order to be able to resell them to a number of investors around the world (banks, investment funds, pension funds) who were hungry for risky financial products and bought these securities with savings. Some investors then created funds, which offered to market their formula to other investors. Investors in the market then bought shares and units in these funds. It was a way of financializing mortgages. We therefore found Subprimes in funds, sub-funds, etc. The layers of the disease were therefore found in all financial markets. - All Subprime products were not sold to investors. [...]

[...] It was indeed necessary to circulate money and allow companies to exploit it. However, we observe that since two years a increase in rates finding its origin in the successive crises of Covid-19 and of the war in Ukraine, although since 6 months, the rates have fallen again due to the slowdown in inflation. The Subprime Crisis has led to a a unprecedented legislative reaction in Europe. The Basel III Accords are being progressively implemented since 2010 at the level of member states of the European Union. [...]

[...] In 2014 then were created the Banking Union and its quite unique supervisory system. It there still exist national control authorities (the ACPR in France), but these latter play a residual role. The essential supervision is operated by the European Central Bank which grants licenses to credit institutions and withdraws them if necessary. However, its special competence in the field of supervision concerns systemically important institutions. This competence brings the guarantee that the rules are applied as uniformly as possible in Europe. [...]