EBF publishes set of 9 principles for successful banking in Europe
15 February 2010
EBF’s paper sets out the industry's recommendations for standard-setters and decision-makers. The principles, if followed, should help to promote the health, safety and vitality of EU banking in the coming years.
2010 coincides with the European Banking Federation’s 50th Anniversary, an occasion marked by the gathering of leading policy-makers and banking representatives in a debate focused on The Future of European Banking held today in Brussels.
Host for the evening Alessandro Profumo, President of the EBF and CEO of UniCredit, stressed the legitimacy of the Federation as the European banking sector’s representative, including in difficult times. “We work in full transparency, our positions are clear, publicly available and publicly discussed”, he declared.
Profumo presented the EBF’s latest publication, a set of 9 principles for a successful future of banking in Europe*, in which the EBF highlights the industry’s recommendations to standard-setters and decision-makers at this crucial time, presenting a set of principles which, if followed, should help to promote the health, safety and vitality of EU banking in the coming years. “The banking industry has a vital role to play in any economy, above all as a facilitator of activity in other sectors”, explained Profumo. “It is now facing a period of exceptional challenge. We would like to make sure that banks can operate in a competitive environment, in an open market economy, under proper supervision. They should not be submitted to any size prescription, and should be able to apply various banking models, while remaining customer-oriented. The European banking of the future should be robust, sustainable, and adaptable”.
The paper offers industry’s recommendations to standard-setters and decision-makers at this crucial time, presenting a set of principles which, if followed, should help to promote the health, safety and vitality of EU banking in the coming years.
I. Banking in an open market economy.
The current system has yielded immense benefit in past decades: open financial markets promote economic welfare. Reforms should respect the values of openness, the freedom of capital movement, the freedom of establishment and a level playing field among financial institutions. It is essential to avoid a return to the days of financial markets fragmented along national lines. The EU’s single financial market is a great achievement and one which must be maintained.
II. Properly supervised banking.
The model of banking supervision must ensure stability and functionality of the markets, as well as being in step with modern banking. It will be important for the authorities to reflect carefully on the likely practical impact of their efforts to re-fashion the supervisory structure, as their decisions will fundamentally affect the banking business and its role in the economy. The European banking industry is witnessing a shift towards more intrusive and more intensive supervision.
III. Truly commercial banking.
Banks must remain commercial in nature; therefore, the crisis-induced public intervention needs to be withdrawn as quickly as possible, in a coordinated and market-sensitive way. Enduring government intervention in the financial system harbours the danger of deactivating market mechanisms and distorting competition. It would make the financial system inefficient, and again susceptible to disruption.
IV. Banking without size prescription.
To make banking safer, policy-makers should focus on the systemic aspects of financial institutions rather than on their size. Systemic risk can be associated with any type of financial institution regardless of size, as well as with non-banks such as, for example, payment or clearing infrastructures. It relates to an institution’s activities, the legal underpinning of its component units, its business model and the scale and nature of interconnectedness with others.
The prescription of a specific banking model would limit innovative and successful business. Stable relations are important for banks and businesses alike, and a variety of banking profiles can offer this. Some models such as investment banking will also continue to offer particular products which are of value to industry and the wider economy. Structural principles (legal form, regional principle, mandatory group membership) should not be allowed to impede the search for potentially successful new business strategies.
VI. Customer-oriented banking.
One positive effect of the crisis has been that the customer is in the spotlight more than ever before. European regulators should continue to focus on banking customers, and in this regard there is a need to increase transparency and build confidence, notably in the field of credit intermediaries and information to consumers. The crisis has highlighted the importance of financial education.
VII. Robust banking.
The banking business is highly sensitive to changes in capital requirements. Over-zealous tightening of the capital regime could have a dramatic impact on European banking as well as on the economy, particularly if attention is not paid to the cumulative effect of the changes.
Capital requirements must be appropriately calibrated to ensure stability and avoid a reduction in the availability of credit and other financial resources to the wider economy.
VIII. Sustainable banking.
Banks and other financial institutions must continue to re-examine the role they play in financing the growth of the real economy and enhancing financial stability. The banking business is crucially dependent on public trust.
Both the public good and the capacity of providers to fulfil their mandates in a competitive, efficient and cost-effective way, can be impaired by deficiences in professional integrity, transparency and accountability.
Banks must further improve risk management, align remuneration and compensation schemes with long-term value creation and gear incentive structures more strongly to customers’ wishes and their long-term corporate interest.
IX. Adaptable banking.
Banks must develop robust strategies to be able to adapt to continuously evolving market conditions and changes in the demand for banking services. They will have to show their ability to address a range of challenges, including adapting their funding sources mix; dealing with possible collateral shortages; and finding effective strategies for restoring securitisation activity. Their adaptability and creativity in financial areas such as these, and in harnessing technology, will help them to better assist society in facing its own challenges.
© EBF
