by Alexander Fink and Andreas Hoffmann
Since 2009, the role of government in banking has increased substantially in Europe. This is, first, a consequence of capital injections or bailouts of private banks (for instance Dexia in Belgium, Royal Bank of Scotland in the UK, Hypo Real Estate and Commerzbank in Germany, Fortis in the Benelux, ABN Amro in the Netherlands, or Allied Irish Bank in Ireland). Second, the ECB has taken on a more dominant role in financial markets. And third, low-interest rates and mounting EU regulation seem to discourage private bank lending. Whereas private banks de-leverage and roll back their portfolios in the absence of great opportunities, so-called development banks substantially gain market share. This is odd and worrisome at the same time.