MADRID (Reuters) – The creation of pan-European banks, rather than national champions, could help lenders fight off rising competition from shadow banking, Bank of Spain Governor and European Central Bank policymaker Pablo Hernandez de Cos said on Tuesday.
“In order to equip the euro area with greater stability, resolute headway must also be made in European bank integration. Pan-European banks are an essential requirement if we are to have a single market for wholesale and retail financial services,” De Cos said at a Bloomberg conference in Madrid.
He said greater competition from non-bank intermediaries could affect banks’ business volumes and net interest income in the current economic climate.
“This potential loss of income is significant at the current juncture, at which banks are posting modest levels of profitability, the economy is slowing and private-sector demand for funding remains sluggish,” De Cos said.
Shadow banks include a range of operations such as hedge funds and securitisation vehicles and have been expanding rapidly in the last few years.
Lenders complain that a lower level of transparency and looser regulation of the sector means it is easier for shadow bankers to increase market share while creating greater financial instability.
In December, ECB board member Klaas Knot said the rise of non-bank financing is creating a major risk for financial stability in the euro zone and needs to be better regulated.
(Reporting by Paul Day; Editing by Catherine Evans)