There Is an Alternative for Deutsche Bank
Rather than creating a financially fragile mega-bank, it would be better to let the lender shrink or be taken over. This is a defining test for ECB supervisors.
Deutsche Bank's proposed deal for its local rival is a sign that something is very wrong at the heart of the euro zone’s banking union.
Photographer: Bloomberg/BloombergWhen Andrea Enria became Europe’s top bank supervisor this year, many expected him to spend his time dealing with his own country, Italy. Instead his first big test is in Germany, where Deutsche Bank AG and Commerzbank AG are discussing a merger that would create the EU’s third-largest banking group by assets.
The European Central Bank’s supervisory board – which Enria chairs – should demand strict conditions before allowing this tie-up. The political pressure in favor of the deal is enormous but the risks for financial stability are just as big. The ECB will be gambling with its reputation if it allows the birth of a fragile giant.