18 October 2013

ACCA: Banking Union - Towards a solid and sustainable integrated financial framework?

Despite signs of improvement of the global economic conditions, recovery remains fragile and the eurozone is still exposed to difficulties. However, lessons have been drawn from the financial crisis. They namely show that the euro area, because of the interconnectedness of its financial institutions and markets, requires a stronger institutional framework to safeguard financial stability and avoid contagion. To address this, in 2012, EU leaders committed to the creation of a Banking Union that would be built on common EU standards, in order to contribute to a smoother functioning of the monetary union, minimise the cost of bank failures and restore confidence in the banking sector. 

Progress on the Banking Union’s architecture is vital , but it is challenging: its two (out of five) first legs, the Single Supervisory Mechanism (SSM) – about to enter into force - and the Single Resolution Mechanism (SRM) - for which agreement is hoped by the end of the parliamentary legislature - are probably the more far-reaching changes introduced since the origin of the euro. Communication is therefore a fundamental element of their success, especially for reinstating trust for the stakeholders and investors.

To contribute to this communication objective, ACCA addressed this very topical issue during its President’s debate organised recently in Brussels, which formed part of the programme of official events held under the Lithuanian Presidency of the European Council. 

Distinguished experts from the European Parliament, the European Commission, the Council, the European Central bank, the banking sector and think tanks exchanged views on:

• whether the Banking Union was building on strong foundations towards a solid and sustainable integrated financial framework;
• the challenges  and opportunities ahead;
• and if the rationale for the Banking Union was strong enough to survive the financial fault lines that stretch across Europe.

Dean Westcott, ACCA past President and Chair of the panel, said: "The 2012 commitment by EU leaders to the creation of a Banking Union is to be commended. All these reforms, proposals and negotiations aim to being about financial stability, confidence and restoration of much needed trust – three issues which matter a great deal to ACCA and its members around the world."

The debate showed general support for the concept of Banking Union, but also acknowledged the serious challenges ahead. Most participants agreed that whilst the Banking Union will help addressing risks, it  is unlikely to be able to address all risks, such as for instance the issue of access to capital - bank lending proves to be still contracting so other sources of financing such as securitisation and long-term investment will need more attention -  and national situations around sovereigns will still affect risk profile. It was also made it clear that further work towards fiscal integration was needed.

If there seemed to be consensus around the SSM, the SRM was subject to more diverging views: while some stressed that having a single system with a single fund is of the essence, others argued that a network of national resolution authorities and national funds could well do the job. 

"I particularly noted the existing political will for a European Banking Union, which is encouraging. The EU has been accused of doing too little too late, but things are now certainly moving forward at pace. Another very important aspect highlighted by panellists related to the importance of a comprehensive assessment and stress tests for banks, but also to the need for backstops to ensure the credibility of that assessment. Last but not least, the role of sound accounting rules in the evaluation process of balance sheets led by the ECB was reminded, referring to the debate around how impairment should be measured and the part that auditors will have to play in providing assurance on that matter", Dean Westcott concluded. 

Press release

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