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What to Expect From Europe’s New Bank Cop

Category: Business,Finance

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Lenders shouldn’t expect much help with their bad debts from Europe’s new senior financial watchdog.

The European Central Bank on Wednesday nominated Andrea Enria as chair of its supervisory board, which oversees the continent’s 118 biggest lenders. Mr. Enria, from Italy, is currently the respected head of the European Banking Authority, and is unlikely to take a softer line on tackling lenders’ bad debts. The industry’s chronic low profitability and poor money-laundering controls present bigger challenges.

Some might hope that his promotion would lead to softer treatment of Italian lenders, many of which are still grappling with bad debts. They are likely to be disappointed. Colleagues joke that Mr. Enria, a former Bank of Italy economist, is sufficiently northern that he may as well be Austrian. His orthodox credentials, and his experience of dealing with large, international financial institutions as chair of the European Banking Authority since 2011, helped him secure the nomination over Sharon Donnery, the deputy governor of Ireland’s central bank.

It’s true that Mr. Enria has shown dovish impulses. In 2017 he called for the creation of a regional “bad bank” to help clean up dud loans. That would have implied a degree of risk sharing by European governments — anathema to Germany — and his plea fell on deaf ears. Since then, the E.C.B. has pushed banks to tackle their own problems.

If confirmed, Mr. Enria will have bigger issues to tackle. First up are the European Union’s lax money-laundering controls, which have led to the sudden closure of banks in Malta and Latvia this year. The scandal in which up to 200 billion euros of potentially suspicious funds flowed through Danske Bank’s Estonian unit has cast a cloud over the Danish lender, and could yet infect others. But the E.C.B. has no formal anti-money laundering powers, instead relying on national authorities — or U.S. authorities — to take action.

Then there is the thorny issue of low profitability. Inside the E.C.B., there is widespread dismay that, despite a benign economy and record-low bad debt charges, banks still can’t make good profits. The European banking industry’s average return on equity is 7.2 percent, according to European Banking Authority figures, well below a probable 10 percent cost of capital.

Tackling these issues, rather than doing favors for banks in his home country, will be Mr. Enria’s top priorities.


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