The ECB has presented its proposals to the European Commission to contribute, together with the entire banking sector, to strengthening the competitiveness of Europe and the banking sector. A joint response from the Frankfurt Institute and the other European central banks to the public consultation launched by Brussels. The proposals, noting that macroprudential regulation, launched in the aftermath of the financial crisis, contributes to strengthening the resilience and solidity of banks without hindering their efficiency and ability to provide loans, have as their objective the completion of the banking union through the single guarantee on deposits and the union of savings and investments as well as greater cross-border competition between banks.
“The central banks of the Euro Area are united: the crucial step to strengthen Europe’s competitiveness is a truly single banking market, in which capital and liquidity can flow across borders and all deposits are protected equally”
explained ECB Vice President Luis de Guindos.
“Better integrated markets and greater cross-border competition can allow banks to better exploit economies of scale and diversify their activities”
said Claudia Buch, Chair of the ECB Supervisory Board.
Password: integration
The ECB recognizes that a resilient banking system is a prerequisite for the growth and competitiveness of the Euro Area, especially in the current context of uncertainty, but notes that competitiveness is based on the harmonization of rules, system integration and economies of scale, not on deregulation and is currently hampered by unnecessary complexity and fragmentation between countries. Hence the need for greater integration of the banking system and greater cross-border competition.
The first step is deposit guarantee and savings pooling
“The Euro Area must function as a single jurisdiction in terms of financial regulation,” says Eurotower, explaining that this involves making progress on “key components” such as the creation of a European Deposit Insurance Scheme (EDIS) and in the Savings and Investment Union.
Current legislation adequate for resilience
Measures to simplify regulation must address excessive complexity without weakening resilience, the ECB says, recognizing that reforms implemented since the financial crisis have helped restore confidence in banks, making them more resilient, without limiting their ability to finance the economy. Safeguard mechanisms such as the output floor and the prudential treatment of non-performing loans contribute to adequately covering risks and should be maintained. At the same time, the capital requirements of European banks are in line with international standards and allow credit institutions to maintain the disbursement of loans, even during periods of severe stress. There is no evidence that capital requirements have hindered banks’ efficiency or lending capacity.
The 5 new proposals
The Governing Council of the ECB has therefore asked for concrete changes to European banking regulations, through five proposals:
- the use of directly applicable regulations instead of directives;
- the consolidation of the five existing macroprudential buffers into just two;
- increasing proportionality for small banks;
- the simplification of reporting;
- adopting a holistic view of the overall level of capital.
