Banking in the United States Versus Europe
Banking in the US and Europe are two rather different things, and that’s something that has become more evident in recent years. Following the financial crisis of 2008, the banks got together, and there was the news of coordinated central bank action intended to support European banks that were looking to access loans in dollars. That action highlighted one of the main difference. European Banks are more willing to use short-term borrowing to fund their work compared to a US bank.
The reason for this is that there are more banks in Europe compared to the USA. Having more banks is a good thing for consumers because there is more competition, and more options. In some European countries, there are even a lot of competitors to traditional banks, in the form of the national Post Office, as well as Building Societies, Credit Unions, and more. Even some supermarkets have their own banking facilities which may be supported by a traditional bank, but act as a different band.
European Banks have loan to deposit ratios that are bigger than their U.S rivals, and they need to fund their operations through borrowing, because in the USA there are just a handful of monolithic banks, but in Europe there are dozens of options.
Indeed, in Europe there are lots of people that don’t have bank accounts, and that don’t rely on credit cards. They use prepaid cards by brands such as PaySafe to do their online transactions. If they have a bank account facility at all it may be a ‘basic’ one that allows for the receipt of payments and then allows for the withdrawal of cash via a no-charge ATM (using a bank with an ATM is far more convenient than having to deal with a teller). They do not use contact-less payments, they do not use online subscriptions, or if they do they rely on other products to handle such transactions.
The results of the US banks, in recent years, shows that there has been a shift in power away from Europe to the US banks, and their combined market values tend to show more financial well being than the US banks. Those banks look forward to more growth, especially now that the Trump administration is promising reduced regulation and higher growth. The European banks are facing uncertainty with Brexit looming and it causing questions over the future of the Euro-zone. This means European borrowers could be facing tighter limits on loan amounts, and less open access to credit as time goes on.