German Banks Call for Progress in the European Banking Union

Heiner Herkenhoff, the president of the German Banking Association, emphasized the importance of advancing the European banking union to facilitate cross-border mergers in the financial sector. According to Herkenhoff, the full potential of mergers can only be realized through a unified market aimed at centralizing the supervision of significant banks under the European Central Bank (ECB).

Speaking last Friday during the International Monetary Fund and World Bank annual meetings in Washington, Herkenhoff highlighted that the banking union is crucial for ensuring the smooth circulation of capital and liquidity among Eurozone countries. He indicated that the attractiveness of mergers is closely linked to the establishment of the banking union.

The banking union was designed to strengthen the European financial system after the financial crisis, but it has faced obstacles, particularly concerning the establishment of a common deposit protection scheme. Herkenhoff's remarks came at a time of tension among German officials regarding the potential acquisition of German state-backed Commerzbank by Italian banking giant UniCredit. This situation underscores the complex dynamics between national interests and European regulatory goals.

Herkenhoff also addressed the need for progress in the Capital Markets Union, which he sees as critical for securing investments necessary for Europe's green and digital transformations. He asserted that a strong capital market is essential for economic recovery.

Another point raised by Herkenhoff was related to the securitization market, which could play an important role in alleviating bank balance sheets and supporting credit-dependent medium-sized enterprises. He noted that the financial sector has proposed changes in regulations to the European Commission, which is currently evaluating these proposals.

The ECB has previously stated that larger European banks are better positioned to support the economy and compete with large banks in the U.S. As discussions continue, the European Commission is expected to assess the proposed changes to the securitization market; this evaluation may impact the financial environment for medium-sized enterprises in Germany and across Europe.