EU Banking Sector Contraction Exceeds US Giants

The European Union's banking sector is experiencing an incredible contraction, according to a report by the European Commission. In fact, the market capitalization of JPMorgan Chase, the largest U.S. bank, exceeds the combined market capitalization of the five largest banks in the EU. This striking fact is cited in the European Commission's report on banking regulation, published in late July.

The report suggests that several factors are contributing to this sharp shift in economic indicators. Firstly, the U.S. economy recovered from the 2008 financial crisis much more quickly than the EU economy, outperforming Europe by nearly 20 percentage points since 2009.

Another key factor is the development and flexibility of U.S. capital markets, which provide companies with more sources of capital and allow banks to manage their balance sheets more actively. In contrast, the cost-to-income ratio at EU banks remains consistently high, and many local regulations hinder the formation of a true single market.

The European Commission is now becoming more receptive to the argument that the need to stimulate bank lending should be taken into account when setting capital requirements. This could set the stage for an interesting showdown between the Commission and the ECB this fall, with the 'doves' in Brussels pitted against the 'hawks' in Frankfurt.