ECB lowers bar for bank mergers in hope of spurring consolidation

Reuters reports that the European Central Bank is lowering the bar for bank mergers in the euro zone, hoping to encourage an elusive wave of consolidation in a sector plagued by low profits and unresolved issues inherited from the last financial crisis.

In a guide published on Wednesday, the ECB clarified that merged entities won’t necessarily be asked for extra capital and will be allowed to use their own accounting models as well as any “badwill” - a paper profit that occurs when an asset is bought below its book value.

These were some of the concerns flagged by bankers in recent years when evaluating mergers and acquisitions (M&A) in the euro zone.

The ECB stressed, however, that it was not its job to orchestrate deals and these needed to be driven by the market.

“Our prudential mandate is not to assess whether consolidation efforts are beneficial,” ECB supervisor Édouard Fernandez-Bollo said in a blog post presenting the guide.

“But well-designed and well-executed consolidation can help address the overcapacity and low profitability problems that have been damaging the European banking sector since the last financial crisis,” he added.

The guide will now be open for consultation until Oct 1.