Cross-border M

1
Cross-border MA of banks in the Nordic countries

• Panel contribution at the FDIC, FRB of Chicago,
  and JFSR conference on Mergers and Acquisitions
  of Financial Institutions Arlington, VANovember
  30 - December 1, 2007
• Bent Vale, Norges Bank (central bank of Norway)

Views and conclusions expressed, are my own and
cannot be attributed to Norges Bank
2
Outline of talk

• Why banks in Nordic countries
• Performance of merged banks
• Regulation of mergers by competition authorities
• Some other regulatory issues specific to
  cross-border banks
• Supervision
• Deposit insurance
• Crisis handling

3
Why banks in Nordic countries

• The Nordic countries (Denmark, Finland, Iceland,
  Norway, and Sweden) is perhaps the region inside
  EU with largest cross-border banking activities.
• Most cross-border MA activities for banks

4
Nordic bank structure in 2004Total assets
5
Performance of cross-border merged banks

• Potential economies of scale and realizations of
  these have been observed by studies of mergers at
  national level (Humphrey and Vale (JBF 2004),
  Norway)
• Karceski, Ongena and Smith (JFE 2005) on bank
  mergers in Norway Commercial customers (traded
  companies) of acquired banks suffer, those of
  acquiring banks benefit.

6
Performance of cross-border merged banks

• Nordea a merger between 4 banks from 4 Nordic
  countries, each with a large market share in
  their own country.
• Goldberg, Sweeney and Wihlborg (JBF 2007) study
  i.a. ROE and cost/income ratios of Nordea and
  comparables in the 4 countries
• ROE of Nordea holding roughly the same
• ROE for 4 Nordea banks better than comparables
• Cost efficiency gains from the merger have yet to
  appear.

7
Regulation of mergers

• Inside EU all banks have the same right to
  acquire another bank irrepective of nationality.
• All cross country banks free to transform foreign
  subsidiaries into branches.
• Issues of competition treated both at European
  level and at national level, but is the national
  market the relevant for competition?
• Are market shares a good proxy for bank
  competition?

8
Supervision

• Base rule inside EU
• Subsidiaries of foreign banks supervised by host
  country.
• Branches supervised by home country.
• But
• MoU between supervisors in Nordic countries
  Share supervisory information between host and
  home, joint onside examinations.
• Institution specific MoU on cooperation in
  supervision, for instance a supervisory college
  for Nordea and its subsidiaries.
• Also agreements for supervison of foreign
  branches

9
Deposit insurance

• EU rules
• Subsidiaries insured by host country scheme
• Branches insured by home country schemes, but
  provisions for topping up in the host scheme.
• Large variation in deposit insurance schemes in
  EU, also among Nordic countries.
• Can be problematic when tranforming subsidiaries
  into branches.

10
Crisis handling

• Responsibility of national authorities
• Although a MoU on exchange of information if
  problems in a cross-border bank, no specific
  rules ex.ante as to how or by whom it will be
  handled.
• Can this uncertainty hamper otherwise desirable
  cross-border mergers?
• Can this uncertainty reduce moral hazard?