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Repairing the Single Market, and avoiding a rift between Member States that will join the SSM and those that will not, requires that a number of additional steps are taken, all strengthening other components of the European System of Financial Supervision (ESFS), for which at the moment I do not see the necessary political commitment.
First, we need a renewed and enhanced effort for the Single Rulebook. Truly unified rules are the necessary conditions to restore trust amongst competent authorities and allow joint execution of supervision on cross-border groups. A wide degree of discretion left to national authorities could open the room for the use of rule-making to de facto ring fence national markets.
A lot of progress is being made in establishing a Single Rulebook in banking, and the EBA is close to finalising a significant number of standards linked to the new legislation on capital requirements (the so-called CRD IV-CRR). But there are still important areas of flexibility that need further action.
There is the flexibility granted for the exercise of macro-prudential responsibilities. This is huge - up to 500 basis points in the capital ratio, with further room allowed in defining the liquidity buffers - but warranted, to tackle bubbles that could develop in national markets. Here it is essential that EU-wide mechanisms are devised to constrain the exercise of this discretion and make sure that it is effectively employed to contrast macroprudential risks, and not aimed at trapping capital and liquidity in domestic jurisdictions.
Moreover, there is the flexibility granted to address smaller institutions operating on a local basis, especially savings and cooperative banks. Also this type of flexibility is warranted, as the rules should abide to the principle of proportionality and reflect the specificities of different business models. But the principle of proportionality should be applied on an EU-wide scale and in no case should simply offer carve-outs to common rules for certain categories of intermediaries, in order to avoid generating de facto barriers to entry in local markets.
There are the elements of flexibility granted just to reflect different policy stances of Member States. For instance, I am particularly concerned of the discussion of the draft Directive on Bank Recovery and Resolution, where the request for flexibility could have two very detrimental effects: (i) it could put at risk the level playing field in the treatment of different classes of creditors, thus allowing for the use of the regulatory lever to reduce the cost of funding for domestic players; and (ii) it could maintain differences that could turn out to be an obstacle in interconnecting national resolution regimes and ensure a smooth and joined-up approach to cross-border groups.
In all these areas the introduction of the SSM should be a positive force, pushing for greater uniformity of the regulatory framework. The EBA has already developed its advisory role, identifying areas where truly common rules are warranted. Perhaps this role should be further codified, to provide a stronger underpinning to the EBA as the guardian of the Single Rulebook.
The second area in which the SSM calls for further action at the Single Market level is the convergence in supervisory practices and cooperation between authorities. Steven Maijoor has already mentioned the need to step up the efforts for supervisory convergence in the previous session. The urgency is even higher in banking, where the staff of the ECB and all the national authorities joining the SSM will have to conduct their supervisory tasks according to a common manual. The task to develop a Single Supervisory Handbook for the whole EU, attributed to the EBA, recognises the importance that key chapters of the manual are truly common across the Single Market. The EBA has already started to work to some of these chapters of the Handbook, in the area of supervision of business models, and will soon move to the methodologies to conduct risk assessments, asset quality reviews and attribute scores to recovery plans. The discussion on the Handbook has focused mainly on the legal nature, and the draft legislative provisions point out clearly that it will not be legally binding. However this misses the point, which is the actual commitment of all competent authorities to define jointly the methodologies and apply them in their day-to-day practice.
Having common rules and common supervisory practices will not rule out the possibility for tensions between home and host supervisors. The introduction of the SSM will significantly simplify home-host relations, but we have to remind ourselves that almost all large cross-border groups have establishments both inside and outside the euro area. The EBA has so far conducted a major effort, within supervisory colleges, through formal and informal mediation, and also via investigations on breaches of EU law, to push forward stronger cooperation and joint decisions. This strand of the EBA work is somewhat obscure, but essential for the repair of the Single Market.
Finally, the greatest challenge will be in the construction of a comprehensive and credible framework for cross-border bank resolution. If the SRM covers only the countries joining the SSM, as it is likely, the challenge will be to avoid that some degree of segmentation remains in the Single Market, as a consequence of the divergent underlying safety nets on which European cross-border groups will rely. Once completed, the Banking Union should thus contrast this trend of national segmentation and provide a robust underpinning for an integrated European banking market. To this end, the SRM should be accompanied not only by a common resolution toolkit for the whole Union but also by clear and binding criteria, agreed among the parties involved, for smoothly manage the crisis and resolution of cross-border groups. Recent experience shows that voluntary agreements are not enough: when a crisis materializes the strong incentives to diverge from the original agreements need to be set-off by credible, binding arrangements. For this purpose, a European Authority should ensure that these agreements are put in place under a common umbrella and are effectively enforced in a crisis, for the whole Single Market.