News - 11.01.2024

Rebuilding Europe's Financial Services' competitiveness

  • The Financial Centre

Europe’s banks and asset managers, with the support of the region’s politicians and regulators, must seize an opportunity to close the ‘competitiveness gap’ with their peers in the US and the rest of the world, a report commissioned by Luxembourg for Finance and published today by OMFIF urges.

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The report is a data study of financial competitiveness, assessing indicators such as size, diversification, profitability, pricing power and valuation. It reveals in stark terms the decline of European financial services firms on a global scale since the financial crisis of 2008.

Fifteen years ago, the total market capitalisation of Europe’s banks was close to double that of US banks. Today, total US market cap is twice that of Europe’s. In asset management, Europe’s institutional investors represented 47% of the top 100 global firms by assets under management. In 2022, they accounted for just 22% of AuM, compared to 70% for US fund managers. Last year, just two of the leading 20 global banks by market capitalisation were headquartered in the European Union, as were just two of the leading 20 global fund managers.

For much of the last decade, Europe’s banks and asset managers have been hampered by fragmentation, the absence of a working capital markets or banking union, a more severe regulatory environment, the implications of low interest rates and an overall lack of risk culture.

However, a series of interviews and discussions with senior executives at leading financial institutions – primarily in Europe but also from the US and Asia – reveal a potential shift for the EU’s financial services sector. Many of Europe’s leading banks have returned to pre-2008 financial crisis levels of profitability, with returns on equity almost doubling in the past three years. Europe leads the way globally in a number of areas, such as green and transition finance and digitalisation of financial services.

And Europe has put competitiveness at the top of its agenda. European Commission President Ursula von der Leyen has appointed Mario Draghi to lead efforts to improve competitiveness in the EU’s economy and financial services, while the new Belgian presidency of the Council of the European Union has commissioned another former Italian prime minister, Enrico Letta, to prepare a report on reinforcing the competitiveness of Europe’s internal market.

Nicolas Mackel, chief executive officer at Luxembourg for Finance, said: ‘We must ensure that the cycle linking financial services and the real economy remains virtuous, and that we are competitive enough on the global stage to finance the economy and boost growth in the region.’

Clive Horwood, managing editor and deputy CEO at OMFIF, said: ‘There are encouraging signs of recovery in EU financial services after a lost decade, and a huge opportunity to build and benefit from sustainable and technological transformations. But regulations must be viewed through the lens of what impact they have on the ability of banks and asset managers to compete globally and provide the finance that the European economy needs.’

The report can be viewed here.