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EU sounds 'too big to fail' warning as Deutsche-Commerzbank merger talks heat up

European banking regulators have warned banks seeking to consolidate to ensure they could be wound down in the event of a financial crisis, as talks on the potential merger of Deutsche Bank AG and Commerzbank AG intensify, Reuters reported March 21.

"If a bank becomes too big, complex or interconnected ... it needs to have additional capital," Andrea Enria, the new head of the ECB's Single Supervisory Mechanism, reportedly said when asked about the potential tie-up of Germany's largest private lenders.

The Single Resolution Board, the EU agency in charge of winding down banks, echoed Enria's comments, saying it expects firms to have "consideration of their resolvability when undertaking significant business model changes," the report noted.

Enria earlier criticized the German government's role in the potential deal, telling the Financial Times in a March 19 interview that he does not like the idea of banking "champions" on a national or European level.

The warning comes as Deutsche Bank CEO Christian Sewing warms up to the proposed merger. Sewing is seeing multiple merits of the deal, including the combined entity's would-be "clear" dominance in the German market, shared technology costs and scale, a person with direct knowledge of his thinking told Reuters.

The CEO also expects the new entity to have "the best funding ever," the source said, adding that the lender's staff numbers will have to be reduced with or without a deal.

At least three of Deutsche Bank's top investors have already expressed reservations about the deal, while two were waiting to hear from Sewing at the lender's March 21 supervisory board meeting, several sources told the newswire.