* Eurozone banks shrank by 4% in 2013 *
The number of banks in the eurozone fell by almost 4% last year, according to the European Central Bank, with the number of monetary financial institutions (MFIs) the euro area reduced to 6,790 at the start of 2014, compared with 7,059 a year ago, a 3.8% reduction.
Crisis countries Cyprus and Greece saw the largest reductions, losing 26% and 17% of their financial sector firms over the past year.
As part of a hastily agreed 17 bln euro bailout package, Cyprus was forced to liquidate second largest lender Laiki Popular, leaving rival Bank of Cyprus to take over 312 Laiki branches.
But a decline in the number of financial firms is not a trend that is exclusive to the EU's crisis countries.
Despite seven EU countries having joined the currency union since 2001, the number of MFIs has fallen by 3,066 – equivalent to 31% – since the launch of the euro in 1999.
Germany and France accounted for 42% of all euro area MFIs, a figure almost unchanged from a year ago.
Meanwhile, Portugal, Slovenia and Latvia are the only eurozone countries to have seen an increase in their number of institutions over the last twelve months.
The bloc's shrinking bank network, which saw more than 5,500 bank branches shut down last year across the EU, also threatens to reduce access to basic bank services for thousands of Europeans.
The European Commission estimates that over 58 mln EU citizens do not have a bank account.
Access to cash machines and basic services is also becoming an acute problem for the bloc's poorest citizens.
Meanwhile, Bloomberg reported that European banks have a capital shortfall of as much as 767 bln euros, as the ECB probes the financial health of the region’s lenders.
French banks show the biggest gap of 285 bln, followed by German lenders with as much as 199 bln, Sascha Steffen of the European School of Management and Technology in Berlin and Viral Acharya at New York University said in their study.
The figures assume a benchmark capital ratio for other book measures of leverage of 7%, they wrote.
“A comprehensive and decisive AQR will most likely reveal a substantial lack of capital in many peripheral and core European banks,” the authors wrote, referring to the ECB’s asset quality review stage of the comprehensive assessment.
The ECB is conducting a three-stage assessment of bank assets before it assumes oversight of about 130 lenders across the currency bloc from November.
Spanish banks have a shortfall of 92 bln euros, while Italian banks lack 45 bln, the study showed.
“Our results suggest that with common equity issuance and haircuts on subordinated creditors, it should be possible to deal with many banks’ capital needs,” the authors wrote.
“Some will, however, require public backstops, especially if bail-ins are difficult to implement without imposing losses on bondholders, who may themselves be other banks and systemically important financial institutions.”
The banking sectors in Belgium, Cyprus, and Greece “seem likely to require backstops”, they said.
Reuters reported that the ECB’s balance sheet and the euro zone's national central banks shrank by 22.649 bln euros to 2.198 trln euros last week, as banks took fewer funds in the ECB's main refinancing operation.
Gold holdings of euro zone central banks increased by 1 mln euros to 303.157 bln euros, the ECB said.
Net foreign exchange reserves in the Eurosystem of central banks increased by 1.9 bln euros to 207 bln euros, the ECB added.
