The release by the ECB of updated data at the end of last March on the banking structure of the Eurozone allows us to take stock of some of the changes that have occurred in the ten years since the Great Crisis broke out and, above all, in the most recent phase.
In particular, it appears that, compared to the end of 2008, the number of banks dropped from 3.928 to 3.154, that is, almost one out of five has been lost (-19,7%). Given that the crisis stemmed from the excess credit granted to the economy, can we conclude that the evolution observed has brought the European banking system into a less critical area? Not necessarily. Indeed, the main problem with deregulated and liberalized banking systems – and not enough has changed since 2008 – is that they create systemic risks. In other words, if a bank exceeds a certain size it becomes too big to (be left) fail: the acronym usually used is TBTF (Too Big To Fail). There is no shortage of experiences. Even in the USA, which has always been more inclined to let banks fail (also because the financial market weighs more on them), after the failure of Lehman Brothers, no other major bank has been allowed to fail. And, despite the bail-in and BRRD announcements, it is clear that no major bank in Europe will be allowed to fail either.
The problem with the TBTF is that, knowing ex ante that their bank will not fail, the managers of the big banks tend to take excessive risks: if heads (i.e. the bet goes well) the bank takes the profits, if tails (bet goes bad) someone else will take the losses. Furthermore, also given the very low rates induced by Quantitative Easing and the unfavorable treatment that the Basel coefficients reserve for credit compared to financial assets, those excessive risks will not be taken on by lending to the economy, but by betting on finance.
From this point of view, the ECB data are not comforting. In the nine months from the end of June 2016 to the end of March 2017, the number of banks decreased from 3.261 to 3.154 (-3,3%) but the reduction was almost entirely for small banks (with less than 0,005% of total bank assets area), which decreased from 2.661 to 2.518 (-5,4%). A simple calculation that, conservatively, assigns large banks their minimum value (at least 0,5% of total euro area banking assets), small banks their maximum value (0,005% of total banking assets) and at middle school, the average value (0,0251%) leads us to the following result. In the nine months considered, assets of the average bank in Europe increased from €171,9 to 182,0 billion (+5,9%).
Therefore, the observed trends are not favourable. It is to be feared that more and more systemic risk is accumulating and that, moreover, the "healthy" credit demand of businesses and households is left dry.
