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Keynote speech by Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, at "Frankfurt 120", about the SSM and its consequences for the third parties framework.
Dombret’s remarks explained how the launch of the SSM marks the first step towards creating a supervisory level playing field in Europe. And yet there are still challenges that lie ahead.
First and foremost, there is the need for German banks particularly to bolster their earnings in the face of stiff European and international competition. Nevertheless, they have to be careful not to search for yield in overheating markets or to soften their lending standards too far.
Other potential risks that need to be addressed are conduct of the banks themselves, which can have financial, reputational and legal consequences; IT risks both internally and from a cybersecurity point of view; losses from large corporate loans, in particular shipping loans; and disruption spilling over from mounting tensions outside the EU.
All these are topics that both banks and supervisors have to give thought to.
Of course, the SSM will influence not only banks and supervisors in the Euro area but also third-country banks and rating agencies, for example. In the next months, it will be visible how the SSM affects third-country banks, especially those European banks whose home countries are not yet participating in the SSM.
Dombret was sure that third-country banks establishing subsidiaries will benefit from the level-playing field in the Euro area. This may possibly be even a competitive advantage compared to other financial centers such as the UK.
He said: “Concerning ratings, I really am curious whether the SSM will provide more confidence in the European banking sector and thereby lead to better ratings for SSM banks. These are only some of the topics I am looking forward to discussing in the following panel.“