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POLICY BRIEF
17-18 Governance
and Ownership of
Significant Euro
Area Banks
Nicolas V¨|ron
May 2017
Nicolas V¨|ron
is visiting fellow at the Peterson Institute for
International Economics, and a senior fellow at Bruegel. He thanks
Tamim Bayoumi, Bill Cline, Maria Demertzis, Egor Gornostay,
Daniel Heller, Brad Jensen, Alexander Lehmann, Andr¨| Sapir,
Dirk Schoenmaker, Nathan Sheets, Guntram Wolff, and Georg
Zachmann for valuable feedback and encouragement.
All rights reserved.
The euro area banking crisis, which started in mid-2007
and has yet to be fully resolved, has sparked considerable
debate and reform. The most prominent reform has been
the initiation of banking union since mid-2012. But one
issue that has been largely overlooked in the debate is the
peculiar ownership and governance structures of euro area
banks. European policymakers and analysts often appear
to assume that most banks are publicly listed companies
with ownership scattered among many institutional inves-
tors (°dispersed ownership±), a structure in which no single
shareholder has controlling influence and that allows for
considerable flexibility to raise capital when needed (°capital
flexibility±). Such an ownership structure is indeed prevalent
among banks in °Anglo-Saxon± countries such as Australia,
Canada, the United Kingdom, and the United States.
Research in this Policy Brief shows, however, that listed
banks with dispersed ownership are the exception rather than
the rule among the euro areaˉs significant banks,1 especially
if one looks beyond the very largest banking groups. The
1. As the next section explains in more detail, this Policy Brief
focuses on the 100-odd largest banks in the euro area, rep-
resenting around four-ffths of total assets. The 3,000-odd
smaller banks are excluded from the analysis because of lack
of suitable public information.
bulk of these significant banks are government-owned or
cooperatives, or uniquely influenced by one or several large
shareholders, or otherwise prone to direct political influence.
As a result, the public transparency of many banks is low,
with correspondingly low market discipline; they have weak
incentives to prioritize profitability; their ability to shore
up their balance sheets through either retained earnings or
external capital raising is limited, resulting in insufficient
capital flexibility; they take unnecessary risks due to political
interference; and their links with governments perpetuate
the vicious circle between banks and sovereigns, which has
been a key driver of the euro area crisis.
EURO AREAˉS SIGNIFICANT BANKS
The new framework of European banking supervision, also
known as the Single Supervisory Mechanism, established
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