The conference is also very timely, coming just before a new European Commission will have to shape the policy agenda for the coming years. Financial integration and financial stability are key to ensuring a resilient and prosperous future for Europe.
The discussions and analysis we heard in today’s sessions provide valuable perspectives on how we can foster financial integration.
Developments in financial integration
Despite the resilience shown during the recent unprecedented times – marked by significant global geopolitical and economic shocks – progress towards greater financial integration in the euro area has been disappointing overall.
Over the past two years, price and quantity-based measures of financial integration have declined substantially. In fact, we are back to the levels seen at the start of the monetary union, and this is despite the significant legislative efforts made over the past decade. Cross-border financial market activities and risk sharing have not recorded any growth.
Financial integration has shown little progress in terms of cross-border bank lending and equity markets. Yet these markets are key to helping small and medium-sized enterprises – the backbone of the euro area economy – overcome their financing challenges. They are also a critical source of risk capital for innovative and high-growth companies, particularly in sectors such as technology, biotech and renewable energy.
Facilitating cross-border banking and removing barriers to cross-border crisis management
Cross-border lending can generate important benefits, especially in relation to private sector risk sharing across countries. Banks can reduce the concentration and home bias of their exposures while borrowers can broaden their access to financing and strengthen funding resilience when the domestic market is under stress.
Yet, the European banking sector is still fragmented. Over the past decade, little progress has been made in integrating banking groups across borders. And when consolidation in the banking sector does occur, it is often at the national level.
Despite the existence of a European supervisory and resolution framework, a number of prudential and resolution requirements, such as capital, liquidity and loss-absorbing requirements, are still national in nature. This is a major obstacle to integration.
To foster cross-border banking, we should make it easier for banks to operate as truly integrated groups within the banking union. For this to happen, there needs to be the same possibilities for pooling capital and liquidity across legal entities located in different Member States as there are for banking groups operating within a single Member State. We should also take a more harmonised approach, and a banking union perspective, when setting minimum standards for capital buffers.
In times of crisis, further harmonising bank crisis management across the banking union will enhance the level playing field in Europe. Stakeholders need to be sure that, if a bank fails, there will be a similar outcome regardless of where in Europe the bank is domiciled. The resolution framework is a key part of this effort. And the ongoing reform of the crisis management and deposit insurance framework aims to broaden the application of the harmonised resolution framework beyond significant banks.
Yet many bank failures will still be managed under national insolvency regimes, so further convergence on these is also needed.
When a bank is wound up under a national insolvency framework, the deposit guarantee scheme plays a vital role in safeguarding depositors’ access to their accounts. For now, these deposit guarantee schemes are also national, which can lead to the perception that a euro deposited in one Member State is safer than in another.
Finally making progress on introducing a European deposit insurance scheme (EDIS) should be a priority for the next legislative term. The recent progress on this dossier in the European Parliament makes me hopeful we can achieve a breakthrough. EDIS would bring us closer to the vision of a true single market for banking in Europe.
A single market for capital in the EU
For the ECB’s Governing Council, a more integrated EU banking market is a key reason to develop a capital markets union (CMU) and establish a single market for capital in the EU.
Previous editions of the reports presented today have illustrated the need to further integrate financial markets to enhance the euro area economy’s resilience through private risk sharing and to strengthen the international role of our common currency....
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