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SRB Chair, Elke König's speech at the ECON Committee

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Wednesday, 01 December 2021
| Sean Pol DE BURCA

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[Introduction]

Good morning Madam Chair and good morning honourable members,

It is a pleasure to be with you once again at the ECON Committee. Thank you for the opportunity to outline the SRB’s priority list of work for the year ahead. The programme for next year is the second year of the SRB’s current three-year multi-annual work programme.

[Current backdrop]

If I may, Madam Chair, I want to first set our priorities at the SRB against the overall backdrop. As we enter into the depths of winter, we see that Europe is once again struggling to battle with the pandemic. It is difficult to tell what the long term economic impact of Covid-19 will be, but whatever happens, we must work together with supervisors and the industry to ensure that every bank is resolvable, and at short notice. I am pleased to say that good progress continues to be made in promoting financial stability in Europe and beyond. There will always be an element of uncertainty as we look to the future, but it seems very likely at this point that the measures the European Union has put in place since 2008 – measures that this committee, and this house were instrumental to putting in place – will ensure that Europe is on a much sounder footing to tackle the current crisis. With continued careful management, our banking sector can be a vehicle to help Europe get back on its feet economically, acting as a vital conduit for credit in the economy. However while we can say that we have come a long way, we have not yet finished the job.

So that is the context in which we will operate over the coming year. I want, now, to focus on what the SRB wants to do in 2022, and then later take look at what the SRB would like to see happen more broadly speaking, before moving onto the exchange of views with the members of ECON. 

[Continuing to build financial stability for Europe’s peoples]

So, first to the work of the SRB next year – we want to continue to strengthen resolvability of Europe’s major banking groups, but which areas do we intend to focus on? 

Our focus in 2022 will be on these three areas:

  • The first is liquidity and funding in resolution: Banks under our remit have been able to raise capital and debt instruments and thus build up further the necessary MREL buffers at record low interest rates this year. I expect most of the banks under our remit to respect the January 2022 intermediate MREL target. We encourage all banks to continue to build up their MREL in this favourable market. Our message to the banks is clear: the market is wide open and they need to continue issuing. They know their requirements that they must fulfil until 2024 and it is up to them to decide upon buffers to keep them safe. So, there is no reason to wait for “tomorrow”.
  • The second area of priority is separability and reorganisation plans. For mid-sized banks, we are prioritising the work on transfer tools, separability and adjustments of MREL for such transfer tools. “Sale of business” is one of the tools in our tool box. But we all know that it needs excellent and timely preparation and, of course, a willing buyer. It is a valid tool, not the magic wand. Last month we issued a guidance note on separability and we will continue to work on this area.
  • The third area is information systems and Management Information Systems or banks’ MIS capabilities, perhaps better known simply as ‘I.T.’ to many of us. The pandemic has brought about a considerable acceleration in advances in this area. Changes that might have taken years have been implemented in a matter of months. Indeed, the very fact that this committee would meet fully remotely would have seemed unthinkable this time two years ago. While some banks have accelerated their efforts on this front, others are still hesitating. We have observed and want to encourage banks’ reorganisation efforts to become more efficient and customer-focused. However, IT and cyber risks and their management, particularly regarding the timely availability of data must be a key priority for banks.

A more transparent assessment of resolvability has long been a key priority for the SRB. That’s why we have defined a heat-map on assessing resolvability, designed as a tool to monitor, benchmark and communicate on banks’ progress towards full resolvability. We are currently evaluating the first cross-cutting assessment based on the progress made by banks so far in form of a heat-map. Achieving an overall consistent and also realistic assessment and heat-map is not an easy task, but it is a very valuable exercise – and we are clear in our communication to those banks that lagging behind that they must get their house in order. We stay committed to publishing an aggregated heat-map once the results are of sufficient quality.

The points I have just mentioned are just some of the areas we will be working on next year. I would invite you to take a look at the work programme published last Friday.

[Broader priorities]

Now onto the second part of my speech this morning. Honourable members, allow me to take brief look at the macro situation when it comes to political priorities. The completion of the Banking Union remains the overall main priority.

[CMDI]

At the SRB, we are following very closely the review of the Crisis Management & Deposit Insurance Framework. We have a good crisis management framework, however, there is room for improvement. At the moment, we are operating in a way where many national solutions have to be found, and are being found in cases where resolution is deemed not possible or rather not wanted. This leads to different outcomes depending on the country. This is hardly conducive to the development of a European internal market.

Indeed, to use a metaphor, if you travel on French motorways, you will often find a sign indicating the exit you can take in order to avoid paying the ‘péage’ or toll on the road ahead. This route is often a smaller, local, backroad, paid for by public money. So, even if you run out of money to pay your toll, you can still use the publicly funded road to stay travelling. Honourable members, in banking terms, it is time to close these ‘alternative routes’, and focus on the main road, to ensure there are no excuses for bail-outs in disguise. 

[EDIS]

In this house, the idea of the ‘level-playing field’ is often mentioned, be it in ECON or in one of the other committees. Well, if we are serious about having a European framework that treats all banks and all depositors equally, then we do need to get reforms on the way, not least to the deposit insurance scheme in place. Equal treatment throughout the Banking Union with EDIS as a strong EU safety net, and sound governance at EU level, will bolster the financial integration that is needed to have a solid return on the investments made to establish the Banking Union.

The time for talking is over – we lack EDIS and we need to treat all depositors equally throughout the Banking Union.

Putting in place the third pillar would also address inter-member-state frictions. Ideally, we would not even have a need to discuss this issue, but it continues to be an outstanding challenge. One of the reasons is the lack of 3rd pillar but another one is the “trust” placed in resolution strategies, that is, the trust in the SRB in really enacting a so-called Single Point of Entry or SPE resolution strategy. Not to take too much time, the important point for the SRB is to ensure that the SPE strategy is operationalised fully. This is a key priority and will hopefully help overcome the unnecessary friction that otherwise fragments the market and might be detrimental to financial stability.

[Green Transition]

Finally, before I conclude – the green agenda.

There was much talk last month in Scotland of the green transition. As someone with children and grandchildren myself, tackling climate change is something that is close to my heart. Nevertheless, we cannot use the excuse of ‘greening’ or worse still ‘greenwashing’ to loosen the rules on financial stability. Instead we must ask this question – how will we finance the green transition, unless we have rock solid banks as the bedrock for the investment required? And of course a single capital market. Banking union and capital market union  go hand-in-hand!

[Conclusion]

Whatever lies ahead of us in 2022, we owe it to ourselves and to the people right throughout the European Union to continue our work on resolvability. Now is not the time to throw in the towel, rather we must redouble our efforts. I want to thank this house for its support thus far in building financial stability, and I would urge each of you to continue to use your influence and your political weight to ensure we put in place the final pillar of the Banking Union and enhance the European crisis management system.

Madam Chair, honourable members, I am drawing to a close. I want to thank you for listening I look forward to your questions.

 

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