EU Eliminating Obstacles to Cross Border Banking

Implications:

EU finance ministers proposed two sweeping changes to break down national barriers that inhibit cross border banking. Cross border bank takeovers will now have a common legal framework and limited time periods for reviewing mergers and reducing the number of reasons for blocking a proposed deal. On the payments front, national payments systems would be eliminated by 2010, leading to an estimated annual savings of 50 to 100 Billion Euro per year.

Analysis: Both of the proposed changes are big deals that are long overdue. EU banks with cross border ambitions have been subject to national politics and home country favoritism on the merger front. Clearing out some of the obstacles used by national regulators will level the playing field.

On the payments front, bankers are going to be hit in their fee income pocket. Replacing transaction fees that have been protected is not easy. This change should also spur investments to overhaul outmoded payment clearing systems and operations.

The convergence of both issues at the same time is likely to spur the renewed interest in cross border M & A deals. As local market banks calculate their earnings hit on fee income, which will be serious, interest in finding a desired M & A partner will escalate. Large banks with cross border ambitions that are well positioned for the new payments rules with efficient payment clearing operations will have a clear advantage.