Transatlantic differences in bank resilience

The relative importance of banks for the financial system differs widely in Europe and the U.S., where Europe has historically been more bank-based than the US How does the different role of the banking systems translate into the resilience of bank business models, and of the financial system overall? In aggregate, European banks are more exposed to systemic risk relative to U.S. banks despite the fact that their book-based tier-1 core capital is comparable. However, there is wide heterogeneity across European banks, rendering the transatlantic comparison more delicate. Also, the authors find differences in social responsibility scoring between the two systems. ESG scores tend to be higher for European banks, particularly on the social and environmental components. On the other side, US banks score higher on governance items. Effectively, at the start of the pandemic in March 2020 the largest European banks were more highly levered relative to their US peers, and, consequently lagging behind in terms of market capitalization. The emerging picture for the lower quintiles in the cross-section of European banks is more favorable in terms of resilience, both within Europe and across the Atlantic.