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Consolidation in the EU Banking Sector

The consolidation of the banking sector in the European Union is an ongoing development. On 21 July, the Florence School of Banking and Finance organised an online debate to assess the current state of this development and identify the ways forward. The content of the debate was built around the draft ‘Guide on the supervisory approach to consolidation in the banking sector‘ published on 1 July by the European Central Bank’s supervisory arm, which until 1 October 2020 will be subject to a public consultation.

The Guide and its content were presented by Edouard Fernandez-Bollo, Member of the Supervisory Board of the European Central Bank. In his presentation, he outlined the objectives and key principles of the draft guide, which entails for parties intended to carry out a consolidation an early communication to the ECB bankng supervision before informing the markets, a supervisor approach based on the sustainability of consolidation prohects, and a close monitoring of the implementation of the integration plan. The presentation also outlined three key prudential aspects to consolidation transactions in a draft guide: the setting of capital requirements and guidance, the treatment of badwill, and the use of internal models by the newly consolidated entities.

The presentation was followed by a debate, moderated by Elena Carletti (Bocconi University and Florence School of Banking and Finance, European University Institute), that reviewed the merit of defining supervisory expectations on consolidation, asked if and how consolidation could contribute to address immediate challenges of the sector such as low profitability and non-performing loans and debated the need for transparency in encouraging sustainable consolidation projects. Participants in the debate were Diego De Giorgi (Independent Director, Unicredit; former Global Head of Global Investment Banking, Bank of America Merril Lynch) and Andreas Dombret (Columbia University, former Member of the Board of Deutsche Bundesbank).

Presentation by Edouard Fernandez-Bollo