Good morning ladies and gentlemen, and thank you for inviting me here today. The top priority of the new Commission is jobs and growth so of course I was keen to meet representatives of a sector which has such an important contribution to make that to that agenda.
I know you have a long history which can be traced back to the Italian merchant bankers of Siena, Venice and Florence. Their financial savvy allowed commerce and trade to flourish, providing the economic fuel for the Renaissance. Over five hundred years later, cooperative banks, with your close links to businesses and local communities are keeping this heritage alive.
Together, the sector provides 4 trillion euros in loans, a big share of which goes to SMEs. In some Member States, you provide between 30 and 40% of all SME lending. As we seek to rebuild Europe's economy, I am very keen to support and indeed develop this channel of funding. I know how important it is, particularly for small businesses in many European countries.
Yours is also a diverse sector, ranging from small cooperatives right up to some of the biggest banks in Europe. I know that there are many examples of smaller banks and cooperatives which have steered clear of the financial crisis and managed their businesses prudently. But the fact that a bank has a particular charter does not unfortunately guarantee that it is immune from management failure.
Smaller institutions can trigger a general loss of confidence in deposit safety and spark contagion. Our recent history shows us that smaller banks, operating mainly in regions of a country, can have systemic consequences. The consequences of the failure of Northern Rock in the UK in late 2007 went far beyond Newcastle-upon-Tyne. It was the first bank run in the UK for 150 years and the footage of hundreds of people queuing up at local branches became a symbol of the financial crisis. So our response has also had to encompass smaller institutions and cooperatives. Financial regulators cannot worry only about big banks.
The banking sector as a whole has a big job to do in terms of rebuilding trust. I want it to be seen as part of the economy – of society – not divorced from the mainstream. To make our economy stronger, we need strong financial services.
But to be seen as part of the mainstream, where I want it to be, parts of the financial sector have to change. I know you don’t want ever more prescriptive regulation. And nor do I. But then in all parts of the banking sector, there needs to be strong values and culture and a reconnection with society, businesses and customers. If banks can do that, they will find in me someone who will champion the contribution they make to growth and jobs.
State of play
The last 5 years have been a period of intensive rule making. And banks have been in the eye of the storm. It was a difficult task to craft rules that make sense everywhere in Europe. But it was nonetheless a crucial one. We had to respond to the financial crisis and to help restore financial stability and public confidence in the financial sector.
To start with, we focused on creating the single rulebook; to ensure that banks were better capitalised and risks better controlled.
As the financial crisis evolved and turned into the Eurozone debt crisis it became clear that, for those countries which shared a currency and were even more interdependent, more had to be done. In particular, we had to break the vicious circle between banks and national finances. So we created the Banking Union. We made the European Central Bank the single supervisor for the Banking Union, and we put in place supervisory cooperation via the European Banking Authority. As a result we now have the strong institutions in place with the skills they need to do the job properly.
Last year, we put the new arrangements to the test. The largest European banks were subjected to the Comprehensive Assessment, made up of the stress test and the asset quality review. It was the widest and toughest test ever. The AQR element alone involved an in-depth examination of some 3.7 trillion euros worth of Eurozone banks' assets.
The aim was to identify and address any remaining vulnerabilities in the EU banking system and to dispel doubts about their health. This was to help restore trust and investor confidence and allow the banks to get on with their primary business: lending to households and businesses and financing the rest of the economy.
The European Banking Authority and the ECB did an excellent job. The results showed the European banking sector is now more resilient and much better capitalised – by over 200 billion euros in the last year alone. EU banks’ capital ratios are now at 12%, similar to levels in the US. And the vast majority have a significant buffer to withstand future shocks, which should help reassure investors.
Not every bank passed the test with flying colours and some weaknesses were identified. But, having shone the lights on these weak points, supervisors both in the SSM and outside the Banking Union are now working hard with the banks concerned to put this right. I was pleased when I was in the US last week to hear that regulators there think our tests were credible – as of course, most importantly, did the markets.
So banks are now stronger as a result of the new regulatory framework, the actions supervisors have taken, and market pressure. This will put them in a better position from which they will be able to lend again. We must continue to remain focused on securing financial stability because we need financial stability if our growth is to be sustainable. That is why I am committed to finalising rules on Bank Structural Reform, money market funds and benchmarks, and to bringing forward new proposals to deal with risks arising from entities other than banks when they need to be resolved.
But I think that if in recent years, it was the financial crisis that posed the greatest threat to finance stability, the nature of the threat we now face is different. What is the biggest threat we face today? I would say it is the lack of growth.
That is why the first major policy President Juncker launched was a 315 billion euro investment plan to help kick start investment in infrastructure. And it is why two weeks ago, I was pleased to be able to unveil the first phase of our new drive to build a single market for capital, a Capital Markets Union for all 28 Member States. I hope it will bring new opportunities for businesses for investors – retail and institutional – and banks.
At its most simple, the aim of the Capital Markets Union is to put savers in touch with more opportunities for growth. By increasing the flow of capital, we will increase investment opportunities, help businesses get the capital they need to expand, provide more options for people to save for their old age, and strengthen financial stability.
I could not be clearer that we need to maintain the vital role that the banking system plays in Europe's economy and the contribution that banks make to local communities. So developing our capital markets is a way of complementing existing sources of funding, not replacing them. In some parts of Europe, where banks are not lending, our start-ups and SMEs are struggling. That's why they need to be able to tap into alternative sources of funding.
However, banks will continue to be an important distribution channel for market funding, particularly for example if we can revive securitisation. That is why we want to encourage an EU market for high-quality securitisation, with transparent, simple and standardised criteria. If we can achieve that, we can help free up banks' balance sheets so they can lend more to Europe's households and businesses. If SME securitisations could be returned – safely – to just half the level they were in 2007, this could be worth some 20 billion euro in additional funding.
Alongside the Green Paper on the Capital Markets Union, we therefore launched a specific consultation on securitisation. Please take part in the consultation and let us know your views, as I want to hear not just from the big market players but from businesses of all sizes. I see the Capital Markets Union as about growing the overall pot so that everyone benefits: banks, capital markets and, most importantly, firms who will find more sources of funding. Removing obstacles that prevent our high levels of savings from finding their way to productive use in the economy. And it is about giving choice to companies on where and how they want to get financing.
Ongoing work, cumulative impact of banking rules
So what further work lies ahead in terms of our banking sector?
The job of delivering a legal framework for Europe's banks is not yet finished. We need to complete the details that will make the Capital Requirements Directive and Regulation, the BRRD and MiFID work in practice. A lot has already been done by both the European Banking Authority and the Commission. We are more than half way there with CRR/CRD level 2 measures, and I hope that by the end of the year we will have completed this legislative steeplechase.
In this regard, I would like to thank the EBA for the high quality of their work in preparing large volumes of draft implementing legislation under fierce deadline pressure. I am very grateful for the very positive cooperation which has been developed which is critical to the successful development of the single banking market.
The reforms have brought significant changes to banks – to their capital levels and their liquidity. We want to examine how these changes have affected banks’ ability to lend to businesses, infrastructure, and other long-term investment projects. In particular, we will need to investigate how all the recent changes have affected banks' ability to support local businesses.
This summer, I will launch a consultation on the impact of the Capital Requirements Regulation on lending to corporates and on long-term finance, with a specific focus on SMEs. I will welcome comments from banks, regulators, and companies on this issue. Drawing on this feedback and other research work, I will come up with conclusions on the impact of increased capital charges on lending to businesses. We would use that insight to determine whether changes might be necessary to the CRR.
Future regulatory initiatives
In the past, we have done our best to differentiate in our rulemaking - ensuring rules are proportionate to the risks posed and the different business models of different types of banks. So, with the Capital Requirements Regulation, we adjusted some of the rules to recognise the specificities of savings and cooperative networks, and included favourable risk-weights for loans to SMEs. We also did this in the recent liquidity coverage ratios where special recognition was made of the needs of cooperative and savings banks.
But I am sensitive to your appeals about the burden of legislation on smaller, lower-risk entities. So we will be making this policy of differentiation even more of a priority as we tackle future challenges. Proportionality in our rule-making is a key principle. I will not take a one size fits all approach, but will aim to take into account the different risks that different activities and different business models present.
We will for example need to decide by the end of 2016 whether it is appropriate to introduce a binding leverage ratio or ratios in the EU. Were we to do so, we would also need to look at the level of these ratios. This is an issue where differentiation would be crucial.
We also need to consider net stable funding ratios. Here, too, we will not be making any hasty decisions, but, with the EBA's help, will do thorough preparatory work. Our decision to proceed, if appropriate, will be based on careful consideration of the options, and the impact on the diversity of business models in the European banking system.
There are a number of important work-streams at global level which we will need to address here in Europe. Issues like how to ensure that TLAC guidelines being developed by the Financial Stability Board fit with new EU rules on "minimum regulatory eligible liabilities" in the Bank Resolution and Recovery Directive.
The EU is a committed supporter and, indeed driver of reforms in the global arena. But as with our capital and liquidity rules, the EU should not be afraid to implement the international standards in a way that makes sense for Europe and Europe’s diverse financial landscape.
Closer to home, I am keen to explore how to bring the benefits of a safe, stable, well-regulated single market for financial services more directly to consumers. I want people to be able to benefit from more competition throughout the EU. And that includes not only that minority of people who actively move to another country or seek out offers across borders, but also all those who remain in their home countries. They, too, should have greater choice, lower prices and a wide range of products suited to their needs.
We also need to consider how quickly banking is changing in the face of new technology and the development of digital services. And how the threat of cybercrime could jeopardise the gains that we have made in enhancing the safety and security of our financial system.
So there are a number of challenges coming down the tracks. But we will address them sensibly, rationally, taking into account the different risks that different activities and different business models present.
Conclusion
Ladies and gentlemen, I want to see a healthy European banking sector that supports growth and benefits Europe's citizens, companies, and society as a whole. A system in which taxpayers don’t have to bail out failing banks.
One that is diverse and well-regulated managed and supervised: a system built on strong ethical standards and sound governance.
I think we have made good progress towards that goal. I know that banks have had to face a period of challenge and change as we have had to respond to the financial crisis.
Looking to the future, we should not expect to have to pass the same volume of new legislation. I know that businesses want – and need – regulatory certainty in order to be able to plan ahead. I will always seek to look at regulation through the prism of jobs and growth, and to adopt a proportionate risk-based approach which reflects the diverse nature of the banking sector. If we want a strong economy, we need strong banks playing their part, like their Italian forebears in a new European renaissance.
Thank you.