US banks are 'dominant' in European derivatives, EBA says

By Sinead Cruise and Stefania Spezzati

LONDON (Reuters) - Non-EU banks have carved out "dominant" roles in some of Europe's key financial markets, including derivatives where U.S. banks prevail, the European Banking Authority said on Thursday as concerns about the strategic autonomy of the European financial sector grow.

Reviewing the dependence of the EU banking sector on foreign banks and foreign currencies, the EBA - which has a mandate to protect and support the EU financial system - said that U.S. banks had a nearly 28% share of the EU derivatives market at December 2023, a rising trend first seen in mid-2021.

Overall, non-EU banks' market share was 33.73%, including an 8.17% share in loans and 6.06% in debt securities, according to the data.

The study was published less than a day after the United States imposed a slew of tariffs on imports, rattling markets and stoking fears of a deep global recession.

It also comes as strategic allies and trading partners of the United States are evaluating their reliance on the superpower.

Some European central banking and supervisory officials are questioning whether they can still rely on the U.S. central bank, Reuters reported last month.

The overall market share of non-EU banks across all assets stands at around 10%, down from around 12% in the previous report, the EBA said.

By currency, 67% of EU/EEA banks' exposures is denominated in euros, 19% is in U.S. dollars, a level which has remained stable since mid-2021, according to the EBA.

"The market shares in certain areas, such as interest rate derivatives, fee income reaped from commodity trading and from providing collective investment services, are substantially higher and are in some cases indicative of dominant roles played by non-EU institutions in the EU banking market," it said.

Olli Carsten, Head of Economic Analysis and Impact Assessment at the EBA said Brussels originally commissioned the analysis in the aftermath of Brexit and finding U.S. banks were strong in derivatives and repo markets was neither surprising nor worrying at this point.

"But (the data) could now also contribute to the strategic autonomy discussion," he said.

"The Commission wants to understand what this market looks like, how it is structured, and whether there are some areas that could raise potential concerns in situations like what we are witnessing now," he said.

The EBA said it also found "a meaningful currency mismatch" at some lenders and recommended supervisors "pay attention to any gaps in stable funding requirements", ensuring currency breakdowns between assets and liabilities are adequately hedged.

(Additional reporting by Tommy Reggiori Wilkes;Editing by Elaine Hardcastle)