Is Europe Overbanked?

This paper is after a difficult question: has banking grown too much in Europe? The difficultly of the question lies in the words “too much”, which require a normative answer. The authors took a stance on how much is “too much”, based on the needs of the real economy in Europe. To tackle the question, they take an approach similar to that of a doctor treating a patient who seems overweight.


They were not the first doctors that the European banking system has consulted in recent years. Their patient had just taken a potent medicine (the CRD IV package) and had prescriptions for more (BRRD, SSM, SRM, and possibly structural reform). Indeed, the patient has grown tired of this medicinal onslaught: he has “therapy fatigue”. But, in the authors' view, more is needed. Some therapies could have a higher dosage; others have not been tried at all. Pagano et al. thought that a course of new treatments will brighten the prognosis: helping the European banking system to make a speedy and lasting recovery from its current bloated state.

This publication was originally published by ESRB – European Systemic Risk Board as Reports of the Advisory Scientific Committee No. 4/June 2014 “Is Europe Overbanked?”. It was presented during the mBank-CASE Seminar no 132 "Is Europe overbanked?".

This report was written by a group of the ESRB’s Advisory Scientific Committee, chaired by Marco Pagano and assisted by Sam Langfield. In addition, the ASC group comprised Viral Acharya, Arnoud Boot, Markus Brunnermeier, Claudia Buch, Martin Hellwig, Andr´e Sapir and Ieke van den Burg.