10 July 2013

ABBL comments on the Commission consultation on reforming the structure of the EU banking sector

In its response to the consultation on the Liikanen report, ABBL expressed its concerns about the impact of the proposed measures on the banking industry, which is absorbing an unprecedented wave of regulation constituting by itself a structural reform.

Nevertheless, being aware of the political reality, ABBL appreciates the transparent and pragmatic approach of the Commission regarding this very complex topic. In that regard, ABBL is keen to contribute constructively to the assessment of the possible options tabled in the consultation document.

Within the area of “Problem drivers”, ABBL is not fully convinced that structural reforms of the largest banking groups would alleviate the problems raised in Part 1 of the consultation document. Indeed, finalising the ongoing international regulatory reform agenda – including important measures still in the pipeline – will help:

• to increase the stability of the European financial sector by reducing risk both at micro and macro level;
• ensure orderly resolution of financial institutions – also for systemically important banks – without having to call on taxpayers.

ABBL agrees that large banking groups may benefit from an implicit subsidy due to their specificity of too big to fail institution, but ABBL is not sure that a structural reform would address the problem properly. In its views, the right response to this issue is provided by the mechanism of bail-in embedded in the Bank Recovery and Resolution Directive: unsecured creditors will in the future require higher remuneration for their investment, commensurate with the risk of being bailed-in. The higher cost of funding will then incorporate adequately the pricing of the risk taken by investors, thereby significantly reducing the implicit subsidy and the moral hazard.

Concerning intra-group structures, ABBL believes that any structural reform should not impose excessive constraints to the free flow of liquidity and of capital across cross-border banking groups. The cost of excessive constraints, i.e. less funding available for financing the economy, would clearly outweigh the benefits of a flexible approach.

Within the area of “Subsidiarity”, ABBL shares the concern of the Commission regarding inconsistent initiatives that could be taken by Member States, leading potentially to a fragmentation of the EU internal market at the expense of the banking industry.

On the other hand, ABBL still needs to see the full impact and practical functioning of the regulatory reform agenda. Therefore, ABBL would prefer implementing 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 on-going regulatory reforms and will also make it more difficult to evaluate their impact.

Full response

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