28 November 2018

Commission reports on progress in risk reduction in the Banking Union and calls for faster progress on CMU ahead of EU Leaders' meetings

In its third progress report on the reduction of non-performing loans (NPLs) the Commission highlighted today that NPLs in the European banking sector have declined further, now standing at an EU average of 3.4%. While efforts need to continue to address legacy issues still weighing on the sector since the financial crisis, this development is very encouraging. In a separate Communication, the Commission also calls for renewed political engagement and efforts to complete key building blocks of the Capital Markets Union (CMU) ahead of the European elections next May. Together with the completion of the Banking Union, this is essential for the development of Economic and Monetary Union and strengthening the international role of the euro. [...]

Banking Union

As the Commission emphasised in its October 2017 Communication, the Banking Union should be completed by achieving risk reduction and risk sharing in parallel. Today, the Commission reports for the third time on the progress achieved on risk reduction efforts. Non-performing loans (NPLs) ratios in the European banking sector continued to decline in the first half of 2018, to an average of 3.4%, and are approaching pre-crisis levels again. This confirms the overall trend of improvement across the Union in recent years, which has been possible thanks to determined action by Member States and market players, notably in countries with relatively high NPL levels. While this is encouraging, high NPL ratios remain a challenge in some Member States. Today's Report will inform the discussions at the December Euro Summit (in inclusive format) on the reinforcement of the European Stability Mechanism and the completion of the Banking Union, including setting up a common backstop to the Single Resolution Fund and further steps towards a European Deposit Insurance Scheme.

The Commission also welcomes progress in trilogues on the November 2016 banking risk reduction package and calls on the European Parliament and the Council to agree swiftly on it, as well as on the March 2018 comprehensive package of legislative measures to tackle NPLs. The Communication also confirms that the Commission has delivered all elements of the Council's Action Plan on non-performing loans from July 2017. The Communication is accompanied by a staff working document prepared by the Commission services, at the request of the Council, on the potential set-up of a European NPL transaction platform, an electronic marketplace where banks and investors could trade NPLs and NPL portfolios.

Capital Markets Union

Completing the Capital Markets Union (CMU) is essential to make Member States' economies and Economic and Monetary Union more resilient, to safeguard financial stability, strengthen the international role of the euro and diversify sources of finances for small and medium-sized companies in particular. The Capital Markets Union will offer more choice to consumers, allowing them to buy cheaper and better investment products, and will enable financial services providers to scale up by offering their services in other Member States.

In today's Communication, the Commission recalls the key CMU building blocks it has delivered over the past three years. These include important proposals for the creation of new opportunities across the Single Market for businesses and investors through new EU-wide products and services, through simpler, clearer and more proportionate rules, as well as a more efficient supervision of the financial industry. So far, 10 out of 13 proposals putting in place the building blocks of the CMU are still under discussion by the EU co-legislators. Three proposals on sustainable finance and three other proposals that are important for EU financial markets are also still pending. The Commission calls on the European Parliament and the Council to put in place all main building blocks for a complete Capital Markets Union before the European Parliament elections in May 2019.The December European Council is invited to endorse these efforts, which are essential not only for completing Economic and Monetary Union and the Banking Union, but also for the Single Market, as highlighted in a Communication of 22 November. [...]

Capital Markets Union - Questions and Answers

Third Progress Report on risk reduction and the declining trends as regards non-performing loans – Questions and Answers

Factsheet on Capital Markets Union

Factsheet on risk reduction in the Banking Union

Third Progress Report on risk reduction and the declining trends as regards non-performing loans

Capital Markets Union Communication

Read-out from the College meeting: remarks by Vice-President Valdis Dombrovskis

[...]Let me begin with the Banking Union report.

The report shows that financial stability in the EU has been considerably reinforced, and risks to the banking sector continue to decrease.

In particular, in the course of a year,the average rate of non-performing loans has decreased by 1.2 percentage points, so now it is down to 3.4 percent.

In Croatia, Cyprus, Hungary, Ireland, Portugal, and Slovenia, we have even seen decreases by 3 percentage points or more.

This is good news for the EU economy!

A lower rate of NPLs means that European banks are more stable and profitable, and better able to lend to households and companies.

However, there are still pockets of weakness that need to be tackled.

In particular, there are very high NPL ratios in Greece and Cyprus, at 45 and 28 percent correspondingly.

This is one of the reasons why we should make progress on the legislative package to further reduce non-performing loans, which the Commission presented this spring.

It is also good news that we are close to a deal on the 2016 banking risk reduction package.

This would improve financial stability, while making life simpler for smaller banks.

Given the progress on risk reduction, the process of completing the Banking Union is now overdue.

So the Commission calls for an agreement on the backstop for a single resolution fund, and further steps towards a European Deposit Insurance Scheme.

Let me now move to the report on the Capital markets Union, which has a clear message:

The European parliament and Member States need to accelerate their work to lay the building blocks of the Capital Markets Union by the end of the current mandate.

We have already some achievements, such as:

• a simplified prospectus for listing on public markets,
• new rules to boost investment into EU Venture Capital Funds,
• and an agreement on Safe, Transparent and Standardised securitisation.

And just today, the Council agreed on a stance on the EU framework for covered bonds, so the trilogues can start on this.

But out of the 13 proposals we presented to build the Capital Markets Union, 10 are still on the desks of co-legislators.

And 3 proposals to enable greener and more sustainable finance are also pending.

By adopting these outstanding proposals:

• we could help direct savings to where they can be the most productive.
• We could diversify sources of funding for smaller companies, so they are less dependent on bank loans.
• And we could make it easier for companies to access deep pools of funding, regardless of where they are located.

In addition, thanks to the CMU, we could:

• further integrate EU financial markets,
• improve their shock absorption capacity, and
• increase private sharing of financial risk.

The results would be a stronger and more resilient Economic and Monetary Union.

And it could also reinforce the [international] role of the euro, by making it attractive for more market participants to use it.

Today's Communication sets out the benefits of various CMU proposals:

• For example, with an ambitious deal on Pan-European Personal Pensions Product, the resulting economies of scale could give savers access to better products at lower costs.

• with our proposal for the cross-border distribution of investment funds, an investor would be able to easily buy shares in funds from all over the EU.

• And with our proposals on sustainable finance, savers would be able to invest their money in green financial products, without worrying about greenwashing.

As I have said before, Brexit makes the Capital Markets Union even more urgent, as currently many EU companies rely on funding and financial services from the City of London.

EU heads of state and government have repeatedly expressed their commitment to completing the Capital Markets Union.

But progress so far has not been sufficient.

So EU leaders should renew this commitment when they meet for the European Council and the Euro Summit in December.

And they should make sure it is followed up swiftly. [...]

Full remarks

Reactions:

AFME welcomes call to redouble efforts on CMU

AFME welcomes progress on Commission’s legislative initiatives on NPLs, but work still to do

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