20 July 2012

EBF Liikanen Task Force Report: "Possible reform of the structure of the EU banking sector"

The EBF supports the aims to ensure financial stability and to protect Europe’s taxpayers from having to step in to shore up banks in Europe. The finalisation of the ongoing regulatory reform agenda – including measures still in the pipeline – will help to reach the objectives mentioned in the mandate of the HLEG more than fully.

In the report, EBF argues that the backdrop to the structural measures that the HLEG is to consider – primarily the recommendations made by the Vickers Commission in the UK and the so-called Volcker rule in the USA – need to be understood in their context and time. Since the consideration of the aforementioned structural measures in the UK and the USA, there has been a large number of regulatory initiatives that will significantly strengthen the resilience of the EU banking sector (CRD III, CRD IV, capital treatment of trading book, etc.) and more measures are still to come.

Furthermore, the report puts forward that possible structural measures will have a detrimental impact on a range of special features of the pan-European market structure, among others the importance of bank intermediation, the connection between retail and wholesale banking, and the variety of business models that in fact contribute to financial stability. Intervention in this framework risks impairing the efficiency of bank intermediation, which can have a negative impact on lending to the real economy, and therefore on EU and Member States’ growth.

Also, the EBF argues that there is no evidence that the crisis was driven by the structure of the EU banking sector or the business models in use. Bank failures did not concentrate on certain type of banking structures or models; this needs to be borne in mind in determining what further steps are appropriate at an EU level. The consolidation of the EU banking sector is a logical consequence of the Single Market, which has delivered tangible benefits here as it has elsewhere, particularly in the ability to move capital across Member States’ borders and create deeper capital markets. It is important that the Single Rulebook ambition is not undermined, nor should the EU be put at a competitive disadvantage globally.

EBF therefore states that possible structural reforms are likely to be counterproductive by (a) being unnecessary; (b) further negatively impacting growth; and (c) potentially undermining the benefits of the Single Market by restricting cross-border activities. The EU can do more, without negative impacts on the economy, in the areas of both the completion of an EU-wide crisis management framework and in the area of supervision, where the foundation already has been laid by the implementation of a new pan-European supervisory architecture.

Reaching agreement on the EU crisis management framework is clearly of critical importance to strengthening the arrangements for cross-border resolution. While many individual Member States now have measures in place on a domestic basis, there is much to be achieved from this being built on through the adoption of a harmonised regime which could sit at the heart of enhanced European supervisory cooperation. An EU approach would also encourage further progress on the putting in place of reciprocal arrangements on common approaches in third countries.

Macro-prudential oversight also has the potential to contribute to the objectives mentioned in the Liikanen Group’s mandate, while not undermining competitiveness of the EU and without restricting activities that are integral to the Single Market (i.e. movement of capital via wholesale markets).

Full report

HLEG-mandate

© EBF