30 October 2013

Commissioner Barnier: Three priorities for sustainable European banks in the real economy

Translated from the French

2014 will mark the return to positive growth in the European Union. However, the economic and social situation remains worrying in two aspects in particular: unemployment that affects 26 million Europeans and the difficulty of businesses, particularly SMEs, to access financing that they need to start new projects.

Under these conditions, the banks that finance 70 per cent of the European economy, and especially retail banks, have a role to play in accelerating the ermerging recovery. Banks must regain their full capacity to engage with their customers, by focusing on the heart of their business: financing the real economy and assuming the share of risk inherent in this task.

With regards to the regulators, they must ensure that these risks are controlled and necessary rules and supervision are implemented to ensure the stability of the financial system. This also means ensuring that banks have adequate capital and liquidity of sufficient quality and quantity to cope with economic shocks while continuing to finance the real economy.

It is clear that we cannot continue to introduce new regulations to infinity. We have already gone further than anyone imagined when the crisis erupted. It is now time to let the rules that we adopted yield their results, see how they shape up to the test of reality, and adjust them if necessary. But this should not hinder us from carrying out the priorities that are specific to Europe:

1. The Banking Union. The single supervisory mechanism was definitively adopted on 15 October. The two laws were published in the Official Journal yesterday. But the Banking Union must stand on two legs: It is now essential to define rules for banking resolution. Specifically, the European Parliament and the Member States must quickly reach an agreement on the so-called BRRD Directive, which lays down common rules, including the distribution of losses, as well as the mechanism of deposit insurance. We need to move quickly on  the Single Resolution Mechanism. I know that many issues are currently being discussed: the role of the Commission, the need for a single resolution fund, the scope or intermediate measure taken until the establishment of a resolution funds.
2. I come to my second priority - structural reforms. We must ask ourselves if there are still systemic risks in our banking system that are not fully captured by our measures of regulation. In particular, it would be unacceptable that risks taken by banks of their own accord continue to weigh on public finances after the crisis we have just experienced. We cannot be satisfied with a situation where the speculative activities of banks inflate their balance artificially and make them both "too big to fail" as well as "too big to be saved".
3. The third priority is long-term financing. Besides the "corrective regulation" that I have just described, it is time to take action to take "proactive control" to ensure the resumption of financing of the economy, especially in the long term. We need to invest in the long term to give innovative SMEs opportunities to build strong and competitive industrial sectors and provide Europe with modern and environmentally friendly infrastructure. Given this need for long-term financing, we in Europe have many advantages: high levels of savings, many foreign investments and actions taken to restore confidence in the financial sector. Banks will clearly continue to play a leading role in the long-term financing in Europe, particularly for SME projects, and we must help them in this task. But this does not prevent us from finding ways to diversify our funding and increasing the role of capital markets, institutional investors or alternative financial markets.

Full speech (in French)

President van Rompuy's speech

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