The Report's excellent analysis on the merits of the European universal banking model is not followed by the necessary conclusion that any split of banking activities might be counterproductive. The Report highlights the essential points of necessary reforms, most of which are already in the making.
ABBL shares the general concerns expressed by the European banking industry on the impacts of the proposed measures:
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Negative impacts on the universal banking model through the reduction of the diversification benefits within a banking group: the centralisation of the liquidity management or the allocation of capital across business lines will become less effective in the future;
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Creation of a two-tier system where banks below the separation threshold will benefit from an undue competitive advantage;
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Increase of the funding costs for the trading entity and, hence, for the banking group with negative consequences on the financing of the “real economy”;
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The possibility of a broader separation resulting from the Recovery and Resolution Plans’ supervisory assessment is too intrusive and creates legal uncertainty.
ABBL believes that the finalisation of the ongoing international regulatory reform agenda – including important measures still in the pipeline – will help reach the regulatory objectives mentioned in the mandate of the HLEG, e.g.
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to increase the stability of the European financial sector by reducing risk both at micro and macro level;
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to ensure orderly resolution of financial institutions – also for systemically important banks – without having to call on taxpayers;
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to maintain the integrity of the Internal Market; and
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to ensure the ability of banks to serve the real economy.
ABBL is convinced that the approach based on better capturing and pricing of risk creates the right incentives and is the most appropriate answer to ensure stability and safety in the banking sector. By contrast structural reforms, instead of adapting regulation to emerging risks, attempt to change the system itself to avoid the emergence of risks in parts of the system. This interventionist solution denies the fact that, by nature, risk is embedded in all banking activities: residential mortgage lending also proved to be very risky during the crisis, and the mandatory separation proposed by the HLEG would not have avoided the bailout of Spanish banks, among other examples.
It should be kept in mind that the ongoing regulatory reform is in itself to be considered a structural change that already has - and will lead to - further restructuring of the European banking sector. Among other things the new liquidity and capital requirements as well as the expected bank resolution measures will pressure banks to raise cost-effectiveness, improve their capital levels and at times lead to further divestment away from non-core assets.
There is still a need to see the full impact and practical functioning of the regulatory reform agenda. Therefore, ABBL thinks that there is a need to implement the upcoming regulations first, before pressing ahead with discussions on possible additional structural reforms. A premature decision on structural reforms is likely to complicate and distract from the implementation of ongoing regulatory reforms and will also make it more difficult to evaluate their impact.
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