Review 2013 - Development in the European financial industry

There have been some important announcements in the past 12 months that could dramatically alter the European financial industry heading into 2014.

Previous years have been characterised by financial bailouts for eurozone members, but it seems the euro area's economy has now started to recover. This will give banks added confidence and there have already been a few signs to suggest lenders are becoming a little less risk-averse.

Here are some of the biggest developments of the last 12 months.

European Banking Union proposed

The proposed introduction of a European Banking Union could revolutionise the continent's financial sector in the years to come.

In July 2013, the European Commission unveiled details of how the single organisation would oversee the banks of EU member states. Commenting at the time, Commission President Jose Manuel Barroso said it is not possible to rule out the failure of banks in the future, which is why this union is required.

"With this proposal, all the elements are on the table for a banking union to put the sector on a sounder footing, restore confidence and overcome fragmentation in financial markets," he remarked. "We have already agreed common European supervision for banks in the euro area and other member states who wish to take part."

The union has not received universal backing and European Central Bank President Mario Draghi said in December 2013 that the current plans may be overly complex and financing arrangements might not be sufficient. This is a story that is likely to develop in 2014.

Debate over Financial Transaction Tax continues

The controversial concept of the Financial Transaction Tax (FTT) has continued to divide opinion in 2013.

EU leaders proposed the introduction of FTT in order to raise revenue and reduce risks in financial markets, but the idea has been heavily criticised. In an interview with Bloomberg in November 2013, Anthony Belchambers, Chief Executive Officer of the Futures & Options Association, said the tax could hinder the EU's economic growth.

"To think the proposal for an FTT will raise the revenue expected is unreal," he was quoted as saying. "To imagine there will not be a serious loss of trading volumes depending on the market is unreal, and to suggest that this is a cost only to banks is unreal."

A study undertaken by PwC on behalf of the financial industry showed the introduction of FTT could reduce gross domestic product growth by 0.3 per cent. This is an issue that could significantly alter the financial sector in the near future.

Are banks lending more money?

With Europe's economic outlook appearing to be much brighter, more small and medium enterprises will be looking for investment to help them expand.

Speaking to euronews in November 2013, Secretary General of the Organisation for Economic Co-operation and Development Angel Guirra insisted it is vital that banks start to lend more money to house hunters and small businesses in order to stimulate economic growth.

He commented: "It's not enough that the banks don't go bankrupt. They have to lend. The problem is that they are not lending. Governments can help by providing some guarantees maybe, some incentives, by sharing some of the initial losses."

Audit market shakeup could be on the horizon

Another announcement that could have a dramatic impact on the European financial industry was made in December 2013 and it involved audit reforms.

The European Parliament reached a preliminary deal with EU member states, which will force companies to rotate their audit firms every ten years. According to Commissioner Michel Barnier, this will help to reduce "excessive familiarity" between auditors and their clients, improving standards as a result.

He said the new rules will provide "innovative tools" to limit the risk of conflict of interest. EU leaders felt the financial crisis exposed serious flaws in the continent's banking sector. This was despite the fact many financial institutions had been given a clean bill of health by auditors, who failed to pick up on huge losses from 2007 onwards.

This is another reform that the European Commission hopes will strengthen the EU's financial sector, as investors need reassurances that the mistakes of the past will not be made again.