|
|
[...] Recent reforms have made our banking sector more stable and resilient. Overall, the sector is much better capitalised, as has been shown by regular stress tests. Banks have raised more than 800 billion euros in capital since the financial crisis. The average capital ratio in 2015 for banks was 13.2%, 4 percentage points higher than in 2011.
Monetary policy has helped improve credit growth in Europe. In the euro area, the European Central Bank has provided abundant liquidity, including through long-term refinancing operations. It launched a large asset purchase programme and cut interests rates to record-low levels. Elsewhere in the EU, central banks are also pursuing accommodative monetary policies.
This is having an effect on the demand and supply of lending. Credit growth has been uneven, but overall, lending to non-financial companies in the EU has increased by 1.2% so far this year. Total lending by euro area banks grew by 1% in 2015. Banks have eased access to finance to the private sector. The cost of new corporate loans has fallen significantly in a number of countries – such as Portugal, Italy and Spain. As regards credit, we are starting to move in the right direction. [...]
But Europe’s weak recovery, low inflation and low interest rates are putting pressure on banks – particularly those reliant on net interest income. Analysts have forecast returns on equity to fall further over the next five years. This outlook weighs on banks’ share prices and it decreases their return on capital.
This environment means banks across Europe are updating their business models. At the moment, it is clear that parts of our banking sector do not have the scale, or in some cases the expertise, to make the most of technological change. Digital payments and other innovations are developing rapidly. European banks will have to seize on digital innovations and work them into their business models. [...]
or more resilient banks, and to enhance financial stability, we will integrate standards into European legislation recently agreed by the Basel Committee on Banking Supervision and the Financial Stability Board.
To make sure Europe fully tackles the risks linked to global and systemically important banks, we will propose they hold a minimum Total Loss-Absorbing Capacity (TLAC) so that they can absorb losses better, and we can be sure that even the most systemically important banks can if necessary be resolved. Europe has established a new banks resolution framework only a couple of years ago. This framework remains the right one to resolve ailing banks and limit the impact on financial stability and taxpayers. So we want to maintain this framework and incorporate the TLAC rule into the existing Minimum Requirement for own funds and Eligible Liabilities – MREL. We expect up to 13 banking groups would have to comply with the TLAC standard in the EU. Where other banks pose similar systemic risks, we expect resolution authorities to deal with this on a case by case basis under MREL.
We will introduce a binding leverage ratio of 3%. Cheap credit can give rise to excessive leverage building up in the financial system. Banks have learnt that lesson from the financial crisis. To avoid repeating past mistakes, we will add the leverage ratio alongside risk-based own funds requirement in the CRR. Put simply, this leverage ratio will act as a backstop to banks’ internal model based capital requirements. We remain fully engaged in ongoing Basel committee discussion on the appropriate leverage ratio for GSIBs and make sure any agreement is applied in a way that works for Europe.
We will introduce a Net Stable Funding Ratio, or NSFR. This will require banks to finance their long-term loans with stable sources of funding. And strengthen banks ability to handle periods of market stress better – such as after the UK referendum or during the last Greek crisis. The NSFR aims to limit over-reliance on wholesale funding during times of ample market liquidity and encourage better assessment of liquidity risk across the board.
We also want to clarify how Pillar 2 capital requirements should be applied by national supervisors and increase transparency by introducing disclosure obligations in this area. [...]
Our revisions to the CRR and CRD will aim to help banks support deeper and more liquid capital markets in Europe. So our proposals will include specific adjustments to avoid disproportionate capital requirements for trading book positions, including market making activities. We will reduce costs for issuing and holding certain high quality financial instruments, such as covered bonds, high quality securitisation instruments, or derivatives for hedging purposes. And we will make sure we have the right incentives in place for institutions acting as intermediaries for trades cleared by Central Counterparties (CCPs).
Beyond our upcoming proposals, the completion of the Banking Union remains a priority. We need it for a coherent and predictable regulatory framework, but also to support integrated banking markets across the EU.
Risk sharing needs to go hand in hand with the risk reduction measures we are incorporating into our legislation. Our proposal for a European Deposit Insurance Scheme would reduce the vulnerability of national deposit guarantee schemes to large local shocks and weaken the link between banks and national governments. [...]
This approach lies behind the Banking Union proposals already on the table, and the proposals we will shortly make to revise the CRR and CRD legislation. It will also underpin our follow up to the Call for Evidence, our proposal on Central Counter Party Recovery and Resolution and the Review of the European Market Infrastructure Regulation. It is the ambitious approach I want to take forward, working closely with industry, consumer groups, the Member States and the European Parliament. And one I believe can make a real difference to supporting sustainable growth and jobs across the EU.