Introduction
Non-European Union banks are increasingly influential in Europe's financial markets, particularly in derivatives, with U.S. banks holding a significant share, according to the European Banking Authority (EBA). This trend raises concerns regarding the strategic autonomy of the EU financial sector.Context
The EBA's analysis, aimed at assessing the EU banking sector's dependency on foreign institutions and currencies, reveals that by December 2023, U.S. banks commanded nearly 28% of the EU derivatives market, a phenomenon first observed in mid-2021. Overall, non-EU banks accounted for 33.73% of the market, with 8.17% in loans and 6.06% in debt securities.Developments
This report followed the recent imposition of tariffs by the United States, which has unsettled global markets and fueled fears of a potential recession. As strategic partners of the U.S. reassess their reliance on the country, some European central banking officials are questioning the reliability of the U.S. central bank. The EBA's previous report indicated that non-EU banks held about 10% of the market share across all assets, down from 12% earlier.In terms of currency exposure, 67% of EU/EEA banks' assets are in euros, while 19% are in U.S. dollars, a stable figure since mid-2021. The EBA noted that market shares in specific sectors, such as interest rate derivatives and fees from commodity trading, highlight the dominance of non-EU institutions within the EU banking landscape.
Olli Carsten, Head of Economic Analysis and Impact Assessment at the EBA, explained that this study was commissioned after Brexit, recognizing the strength of U.S. banks in derivatives and repo markets as unsurprising. He indicated that the findings could now contribute to discussions on strategic autonomy within the EU. He added that the European Commission aims to understand the market structure and identify potential concerns, especially in light of current global circumstances.
Furthermore, the EBA identified a "meaningful currency mismatch" among some lenders and advised supervisors to monitor any gaps in stable funding requirements to ensure that currency exposures between assets and liabilities are properly hedged.