American Banking Hegemony, A View From Europe

More than eight years after the beginning of the financial crisis, U.S. banking groups are dominating the financial world more than ever. This leadership has technical, political and legal grounds. But it also relies on one quintessentially American quali

The New York Stock Exchange on Wall Street
The New York Stock Exchange on Wall Street
Edouard Lederer

PARIS â€" On this side of the Atlantic, the following statement will make most people groan: Despite the financial meltdown that began in 2007 in the United States, American banking groups dominate the financial world more than ever.

As evidence of this, the upper ranks of the global mergers and acquisitions are all occupied by U.S. investment banks. Wall Street banks have also just reaped record profits, even though they were admittedly generated by cost-cutting plans rather than new business. The tools of American leadership are simultaneously technical, political and legal. But its surprising durability can also be explained by one essential quality: rock-solid pragmatism.

This characteristic was rapidly apparent in the way the crisis was handled: In 2007-2008, many banks closed down. Without mercy, the sector immediately made the most of the situation to consolidate. Unlike what happened in Europe, the disaster led to the emergence of new financial empires in the United States. As early as 2008, Bank of America leaped to the rescue of Merrill Lynch, and JPMorgan took over Bear Stearns for a very low price. The growth of these giants wasn’t hindered by post-crisis measures passed by the American authorities, and this, despite the 2010 Dodd-Frank law, which, on paper, aimed at toughening bank solvency rules and reinforcing the powers of regulators.

U.S. banks weren't particularly weakened by the avalanche of fines imposed by regulators. To this day, Wall Street has paid more than $180 billion for its responsibility in the financial crisis. But, as huge as they may be, these penalties are four times less than the profits it has accumulated since 2007 ($700 billion).

Most importantly, U.S. authorities saved the corner stone of their banking system: the two agencies Freddie Mac and Fannie Mae. On the verge of ruin at the moment of the crisis, these two institutions now own or guarantee half the mortgage loans in the United States. Loans that they buy off commercial banks are resold to investors in securitized forms. This system, which was at the rotten heart of the subprime mortgage crisis, was somehow maintained and now stabilizes real estate financing in the U.S.

But it’s not the only advantage. By helping banks control the size of their balance sheets, Fannie and Freddie also give American lenders a step ahead on the global regulation stage. Since the crisis, various ratios with abstruse names â€" solvency ratio, leverage ratio or the new TLAC (Total Loss Absorbing Capacity) â€" have indeed forced banks to cut costs or massively recapitalize. In this context, the large-scale securitization carried out by the twin agencies is an efficient way to control balance sheets.

This American domination can be felt in the very conception of all these rules. When a new norm enters the public sphere, the discussions usually follow the same sequence: First, the text seems easier to implement in the U.S., with European countries only managing to consider the project afterwards. Paradoxically, this situation doesn’t necessarily result from deliberate or fervent lobbying. Some just see in this the natural weight of the world’s No. 1 economy.

EU v. UK

The dollar is, of course, the other major attribute of the power: American banks have privileged access to it, and all the international groups who wish to work with the currency have no other choice than to yield to the rules decreed on the other side of the Atlantic. It is indeed the use of the dollar that made it possible, from an American point of view, to accuse BNP Paribas of having violated economic embargoes, which led, in June 2014, to an exceptional $9 billion fine.

Faced with this steamroller, Europe should stand together. But it's still very fragmented. On the Old Continent, the banking playing field â€" even though cross-border rapprochements have taken place â€" still has largely national dimensions. Instead of growing like their American rivals, they are undergoing a weight-loss program, focusing on certain jobs and geographic areas. After RBS and Barclays, Deutsche Bank launched a major reorganization.

On the institutional level, the recent banking union project, a set of rules and institutions meant to create a real single Europe of banks, is a huge leap forward. But the Eurozone â€" managed by the ECB and a single banking supervisor â€" and the powerful City in London don't necessarily share the same interests.

The European banking regulations project that is currently discussed provides another example. Originally, this text, which was aimed at separating retail banking market activities concerned 30 major banks within the European Union. The United Kingdom demanded to be excluded from it, claiming that similar regulations are already applied to its own banking groups. Since then, negotiations have been in full swing, as the limits of the text grow tighter and tighter, to the point that it seems that the major French groups may now be almost the only ones concerned. It is just these kinds of clashes that also wind up benefiting American banks.

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7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.

But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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