Booming banks 'sowing seeds for next credit crisis' in Europe
European banks are emerging from the credit crisis bigger than before, posing more risk to their national economies.
BNP Paribas SA, Barclays Plc and Banco Santander SA are among at least 353 European lenders that have increased in size since the beginning of 2007, according to data compiled by Bloomberg. Fifteen European banks now have assets larger than their home economies, compared with 10 lenders three years ago.
While the European Union has grabbed headlines for breaking up bailed-out banks, regulators haven't reined in firms that shunned state aid and are too big to fail. European bank assets have grown 25pc since the start of 2007, compared with a 20pc increase at US lenders.
"We are sowing the seeds for the next crisis," said David Lascelles, from the London-based Centre for the Study of Financial Innovation, a research group. "What we have been doing in the last two years is making banks much bigger."
Banks expanded their balance sheets during the credit bubble, borrowing cheap money in the wholesale market to fund loans and investments. Royal Bank of Scotland Group Plc's assets ballooned 2,914pc in the 10 years through 2008 as it made acquisitions, boosted trading and increased lending. Edinburgh-based RBS spent $140bn on takeovers during the period, culminating in the purchase of ABN Amro Holding NV in 2007 that triggered the world's biggest bank bailout.
Paris-based BNP Paribas, the world's biggest bank by assets, increased its balance sheet by 59pc to €2.29 trillion since the start of 2007, an amount equal to 117pc of France's gross domestic product. Assets at London-based Barclays rose 55pc to £1.55tn, or 108pc of GDP. Santander's rose 30pc to €1.08tn, about the size of Spain's GDP.
Assets
RBS vowed to cut its balance sheet by 40pc over the next five years, and the European Commission has ordered banks, including Commerzbank AG, ING Groep NV and Lloyds Banking Group Plc, to sell assets as a condition of approving state aid.
The EU doesn't have authority over banks that weren't bailed out, many of which continued to expand as economies contracted. Thirty-eight of Europe's 100 biggest financial institutions have more assets now than they did at the beginning of the year, according to Bloomberg data.
But the credit crisis shows that large institutions pose too great a risk to their home countries, said Tom Kirchmaier, a fellow at the London School of Economics. (Bloomberg)
Irish Independent
