IPOL | Economic Governance Support Unit
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operating and decision-making structures remain highly decentralised. These include, to various
degrees, Erste Group in Austria; OP Group in Finland; BPCE, Crédit Agricole and Crédit Mutuel in France;
Cassa Centrale Banca – Credito Cooperativo Italiano and Iccrea in Italy; and Rabobank in the
Netherlands, all of which are SIs.
For the purpose of financial stability and prudential considerations, banks that belong to IPSs evidently
present very different patterns of risks and challenges than stand-alone entities. If the mutual support
pledge is credible, as is generally the case for smaller institutions, then those banks will not fail, but
correlated fragility in many of them could endanger the entire IPS structure. In other words, individual
IPS members do not contribute to systemic risk given the institutional protection they benefit from, yet
the systemic risk profile of the IPS as a whole is akin to that of a bank as large as the combination of all
the IPS members. Also, IPSs reduce regulatory costs for their member institutions, because they provide
common resources for compliance and information system that benefit from IPS-wide economies of
scale. Thus, the rationale that underpins tailored prudential policies for stand-alone smaller banks does
not translate to smaller banks that are IPS members. In any discussion of tailoring policies in the euro
area, a clear distinction must therefore be made between stand-alone LSIs on the one hand, and LSIs
within an IPS on the other.
2.4. A mapping of credit institutions in the euro area and US
Balance sheet size is the main justification for tailoring prudential requirements. Table 1 summarises
the relative importance of smaller and larger credit institutions in the euro area and United States,
including banks, credit unions, promotional banks and GSEs. Figure 1 summarises the data on each
category’s assets. These charts underline a number of differences and similarities between the two
markets.
Most strikingly, after adding credit unions and correcting for IPSs, there are 8.3 times more stand-alone
smaller credit institutions in the United States than in the euro area (10,089 versus 1,212). These also
represent a larger share of the system’s total assets: 12.9 percent versus 8.9 percent, once the euro-area
LSI sector has been corrected for IPS structures. This is despite our use of a lower threshold between
‘smaller’ and ‘larger’, which skews the comparison: $10bn in the US vs €30bn in the euro area. If €30bn
($36.81bn) is used in the US instead of $10bn, the respective numbers become 18.4 percent versus
8.9 percent. In other words, using a true ‘apples-to-apples’ approach, the relative weight of smaller
institutions is more than twice as large in the US as in the euro area
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. Credit unions are collectively a
hundred times more significant in the United States than in the euro area, with 5 percent versus
0.05 percent of the system’s total assets.
In the euro area, LSIs that are members of IPSs collectively account for about as large a volume of assets
as stand-alone LSIs. As for promotional banks (outside of CRD scope) and GSEs, they are comparatively
few in number but an important component of the system in both the euro area and the US, pa rt icu larly
in the latter, where they represent over a fifth of total assets.
Table 1: Banking sector structures in the US and euro area, end-2020
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In order to compare accurately like-for like, it would be desirable to add to the total of (stand-alone) LSI assets the assets of
those SIs that fall under the €30bn threshold. The ECB does not provide relevant disaggregated information, but based on its
list of supervised institutions as of 1 January 2021, there are at most 30 such SIs. By construction, their combined assets cannot
be more than 30 x €30bn = €900bn (2.8 percent of system total), and are presumably only a fraction of that number. Thus, we
reckon that our finding of a factor of more than two between euro area and US is robust against that possible correction.