08 July 2013

ECB/Draghi: Introductory statement at the ECON Committee Hearing

Draghi addressed the economic and monetary developments in the eurozone, financial fragmentation and SME financing, and the Banking Union. (Includes link to full text of the hearing.)

Following its July meeting, the Governing Council stressed that the monetary policy stance is geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability and promoting stable money market conditions. It reiterated that its monetary policy stance will remain accommodative for as long as needed. Furthermore, the Governing Council sharpened its communication by announcing that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation was based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics. In the period ahead, we will monitor all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.

Lending rates are very heterogeneous across euro area economies. This reflects divergent bank funding conditions as well as country-specific macro-economic developments that affect the creditworthiness of borrowers. The ECB took action, within our mandate, to alleviate this fragmentation: explicitly, we took action that alleviated funding constraints and reduced the dispersion of bank funding costs not least through the three-year long-term refinancing operations (LTROs). Still, the dispersion in lending rates across countries and borrowers remains substantial.

A number of options – of both a short- and longer-term nature – are being explored, including the provision of guarantees; credit enhancements of SME loan pools to revive structured credit markets over a longer time horizon; and third, purchases of asset-backed securities (ABS) by the Commission and the EIB. Initiatives to foster the developments of the capital market, including the securitisation market, to complement the role of the banking system are particularly useful in the euro area. With respect to securitisation, we have to be aware of the numerous constraints on the revival of ABS public issuance. These include in particular some proposed changes to the regulatory framework, which may reduce incentives to invest in certain types of ABS in the long term. Such constraints need to be properly addressed. The regulatory treatment for securitisation should acknowledge the credit performance and ensure an unbiased level playing field with other securities regarding risk, rating and maturity.

All core elements should fall into place swiftly to reap the full benefits of a banking union. The stakes are too high to afford undue delays. To complete such an essential project, resolute action has to be taken in the months to come – and this Parliament has a key role to play.

First, until the regulation on the single supervisory mechanism (SSM) is adopted, we at the ECB cannot formally take decisions. In this context, it is my understanding that the supervisory accountability arrangements with the Parliament, in line with the SSM regulation, are nearing finalisation on the basis of a constructive stance by both parties. We are working in close and constructive cooperation with the national authorities for the establishment of the SSM. This includes five main workstreams: first, mapping the euro area banking system to identify in particular systemic institutions; second, addressing legal issues in the development of the new supervisory processes at SSM level; third, preparing a harmonised supervisory data reporting framework; fourth, developing a supervisory model and manual; and fifth, designing and implementing the balance sheet assessment required by the SSM Regulation.

A second cornerstone of banking union is the Bank Recovery and Resolution Directive (BRRD). By providing the tools and powers in national laws, it will form a basis on which to build a single resolution mechanism (SRM). The ECB welcomes the fact that an agreement on BRRD was reached at the last ECOFIN meeting. I trust that this Parliament, together with the Council, will reach an agreement by the end of this year.

This will in turn pave the way for a swift entry into force of the European Stability Mechanism’s direct bank recapitalisation instrument. We welcome the political agreement reached at the last Eurogroup meeting. This instrument will usefully complement the existing European backstop and will contribute to the further decoupling of banks from their respective sovereigns.

A single resolution mechanism is the next crucial pillar of the banking union. It is an indispensable complement to the single supervisor and should ideally be in place once the SSM is operational. The ECB looks forward to the Commission’s proposal for an SRM with a strong single resolution authority at its heart and a single resolution fund at its disposal.

Full speech

Full text of the hearing

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