Competitiveness of European financial services
Defining competitiveness in financial services is not a simple task. The aim of this report, produced in partnership with OMFIF, is to consider the relative competitiveness of the European financial services industry against their peers in the US and Asia, and to analyse the key factors of Europe’s decrease in competitiveness over the last decade. The report looks closely at elements such as scale, diversification, profitability, pricing power and valuation.
The prior fifteen years have seen European financial services competitiveness fall, with several factors contributing to this, including fragmentation, home bias among investors, and increasingly burdensome regulatory regimes. Nonetheless, Europe has a chance to arrest the fall by working together to finalise the Capital Markets Union and related projects, as well as by continuing to lead peers in standard-setting, as is already happening in terms of sustainable finance and open finance.
In dollar terms, the European Union’s economy is now worth 65% of the US economy. In 2013, its combined gross domestic product was 91% of the US’s.
Europe is the home of just 3 of the top 20 largest asset managers globally and 3 of the largest 20 banks by market capitalisation.
of household financing in Europe is funded by bank loans, whereas 73% is funded by the capital markets in the US.
Some of the highlights of the report include:
- European financial services have lost market share in the past 15 years. Among the largest 100 asset managers globally, the share of funds from Europe has dropped to 21.9% in 2022 from 47.1% in 2007.
- Of the top 50 largest banks by Tier 1 capital, the total market capitalisation of European banks was the highest of any region globally in 2007. It is now approximately half of the value of those in North America and Asia Pacific.
- Since the 2008 financial crisis, weak gross domestic product growth, fragmentation, regulatory burden and an underdeveloped retail investor base have contributed to the loss of Europe’s global market share of the asset management industry.
- Global leadership in sustainable finance standards offer a comparative advantage for European asset managers.
- Achieving a Capital Markets Union would help to address European fragmentation.
- Regulators need to consider the impact of new directives on banks’ ability to compete both throughout Europe and internationally. US banks are less likely to benefit from a more benign regulatory playing field as they are forced to adopt the ‘Basel endgame’.
- Opportunities exist to set the pace in central bank digital currencies, distributed ledger technology and artificial intelligence.