To move our banking sector forward, we need to think about new ways to increase profitability, resilience, digitalisation and sustainability.
The EU’s recovery programme, Next Generation EU, has started
delivering money to Member States to kick-start their investment and
reform programmes.
According to the Commission’s Summer 2021 Economic Forecast, the EU economy is set to expand by 4.8% this year and 4.5% in 2022.
And today, Europe can look to the future with greater confidence.
This conference - “Banking on the Future” - is an opportunity to map
the way forward together and gain a better understanding of emerging
trends.
It is also a chance to discuss the part that banks should play in our economy and our society.
To move our banking sector forward, we need to think about new ways
to increase profitability, resilience, digitalisation and
sustainability.
[Profitability]
In the face of a global health emergency, banks have remained robust.
That’s in large part thanks to the reforms since the global financial
crisis.
While the pandemic did affect profitability, we are starting to see some green shoots of recovery.
The ECB this month confirmed that the euro area economy rebounded in
the second quarter of the year and is on track for strong growth in the
third.
People are starting to spend money again, and financing conditions
for businesses, households and the public sector have remained
favourable since the summer.
Alongside this optimism, we need to maintain some caution.
We need to consider what might happen when loan guarantees and moratoriums end.
We need be prepared should the number of non-performing loans start to rise.
If we want to build a strong and profitable banking sector in the
post-pandemic future, one thing is certain – we need to complete the
Banking Union.
A Banking Union means a larger market and that creates more
opportunities for economies of scale and to invest for the future – the
future is digital and we need to invest in that future.
Banking Union would create the conditions to reduce fragmentation and
allows banks that operate internationally to manage their liquidity and
capital at a consolidated level.
And when taken together with the Capital Markets Union, it will create greater stability and capacity to absorb economic shocks.
A real Capital Markets Union can also give EU investment banks the
scale to develop their activities and compete internationally.
There are still challenges around the Banking Union - including the
crisis management framework and a European deposit insurance scheme.
But we must have the courage to overcome those obstacles - sooner rather than later.
[Resilience]
As well as making our banking sector more profitable, we want to make it resilient in the long term.
For that reason, we are tabling a legislative proposal that will implement the final Basel III standards in the EU.
The proposal will meet our international commitments.
This is an important signal that the EU banking sector is capable of meeting international standards.
Our proposal will include necessary adjustments within the Basel
framework to reflect the specific features of the EU banking sector.
The overarching goal will be to address remaining flaws in the
prudential framework without leading to a significant increase in
overall capital requirements.
This should maintain banks’ capacity to finance the economic recovery after the pandemic.
Resilience also means that we should be able to protect our financial
system from unfair and abusive practices, while being fully committed
to openness and multilateralism.
We value what we call our “open strategic autonomy”.
In financial services, that means being open to the world and working
together globally, and doing so from a position of strength at
home, staying alert to any vulnerabilities in our financial markets and
building our resilience.
I see this as a key part of my role, which is to safeguard financial
stability. To continue to enjoy the many benefits of open global
markets, we should be aware of possible fragilities.
For that reason, with the help of supervisors we are analysing the
possible financial stability risks of excessive reliance on foreign
financial institutions and funding in foreign currencies.
[Digitalisation]
Looking to the future, it’s clear that technology and innovation is leading to big changes in banking and finance.
At an individual level, people are accessing finance in very different ways.
Our bank accounts are just a click or a swipe away.
Almost every one of us has a powerful computer in our pockets that
puts ever more complex financial products at our fingertips – literally.
But with this digitalisation may come more bank closures.
There was a decline in the number of bank branches in most Member States already in 2019, before the pandemic.
And it is likely to accelerate because of the pandemic.
In rural areas, banks are an important part of the local community.
We should be aware of potential social impacts of branch closures.
At a broader level, fintechs are leading to change in finance.
Fintechs have helped to broaden and speed up access to loans, including in response to the Covid-19 crisis.
While this may boost efficiency and financial inclusion for consumers, it also creates new challenges.
Fintechs take apart the full-service model offered by traditional banks.
With their more complex value chains, Fintechs are also a challenge for regulators.
It can be more difficult to get a clear view of the risks.
At the same time some big tech companies are entering financial services.
They have access to an extensive user base, with huge amounts of data on those potential customers.
For innovation to work in a fair and competitive manner, all
companies entering payments, banking or other financial services –
whoever they are – need to be subject to the same sort of regulation and
supervision.
If we want to make sure consumers, banks and Fintechs thrive in the digital world, we need a clear strategy.
Last September, the Commission set out our Digital Finance Strategy.
Our goals are to tackle fragmentation in the Digital Single Market
for financial services, to facilitate innovation, to promote data-driven
finance, and to address new risks.
With this strategy, we want to build a strong, vibrant European digital finance sector.
That will reinforce our open strategic autonomy in financial services.
And it will strengthen our capacity to regulate and supervise the financial system.
As a first step, we encourage the co-legislators to swiftly reach
agreement on our first package of legislative proposals in this area.
Those are the Regulation on Markets in crypto-assets (MiCA), our
Digital Operational Resilience Act (DORA) and the DLT pilot regime.
And we will continue to work on the implementation of the Digital Finance Strategy.
We are currently working on an ‘Open Finance’ framework.
The revised Payment Services Directive marked an important step
towards the sharing and re-use of payment account data by banks and
third party providers to build new services.
Building on that experience, the aim of an ‘open finance framework’
is to open up data-sharing among financial institutions beyond payment
accounts and banks, including insurance firms and asset managers.
That will help create better, more innovative financial products. At
the same time, we also want to maintain a level playing field between
new and existing entrants in the financial sector.
Also in the digital realm, we are working on the possibility of a Digital Euro with the European Central Bank.
The aim here is to ensure that the euro remains fit for the digital age.
The ECB is exploring this possibility as a complement to cash and private-sector payments.
In July, the ECB announced that it would move into the investigation phase of digital euro project.
We very much welcome that decision.
Of course, a digital euro is not just a technical endeavour but could
have far-reaching consequences on banks, the private sector, cyber
security, privacy, money laundering and financial inclusion.
So a possible digital Euro will have to be carefully thought through,
and we will need a political discussion as well; including with the
Member States and European Parliament.
[Sustainability]
I know that my colleague Commissioner Gentiloni will be speaking to
you later today about inclusive growth and environmental sustainability
so I will keep my remarks on this important topic short.
The EU Green Deal involves a transformation of our economy.
We want to be the first climate-neutral continent by 2050.
That needs huge investment in transport, housing, energy, to name but a few.
This huge shift in investment cannot take place without banks and the whole financial system on board.
The EU has put in place a sustainable finance ecosystem to transform the financial system.
The cornerstone is the EU Taxonomy, which classifies green economic activities.
We have also recently proposed new rules to improve sustainability
reporting by companies – the Corporate Sustainability Reporting
Directive. The financial system will gain access to reliable data from
companies about their sustainability impacts.
We also need to protect banks from possible risks stemming from
climate change. That means preparing for physical risks like extreme
weather events that would impact bank balance sheets.
And it means being ready for transition risks - financial losses that
might happen in a disorderly transition towards a low-carbon economy.
[Closing]
In 2030, I hope that we will be able to look back and say we changed banking for the better.
The road ahead will not be easy. And the pandemic is not behind us yet.
The Delta variant is still causing some ongoing concern, not only in Europe.
But with the success of EU vaccination campaigns and the reopening of
our economies and societies, we can be more hopeful that we are making
our way out of this crisis in Europe.
As I said at the beginning, to propel our banking sector forward, we
need to think about new ways to increase profitability, resilience,
digitalisation and sustainability.
So our regulation needs to look to the future.
I want to organise an 'Ideas Forum’ on the future of finance to engage with banks, fintechs, citizens and more to do just that.
My thanks to the European Banking Federation for inviting me to speak here today.
These events are an opportunity to debate ideas and challenge each
other to think differently. If we are serious about “Banking on the
Future”, these are the conversations worth having.
Commission
© European Commission