Vice President Valdis Dombrovskis

Speech at the speech at the structured dialogue with the ECON Committee

Brussels, 21 November 2017

 

 

Honourable chair,

Honourable Members of the European Parliament,

Thank you for the invitation to discuss our work to make Europe's financial sector more resilient and more integrated.  As we saw during the crisis, a well-functioning financial sector is a pre-condition for creating jobs and economic growth. Since our last structured dialogue on this subject, Europe's economic situation has further improved.  The Commission now expects the EU's economy to grow by 2.3 percent this year, and average budget deficits to fall to 1.2 percent of GDP. EU unemployment is at a 9 year low.

This trend is encouraging, but our economy continues to face challenges.

  • Public and private debt levels are high, and there is not enough long-term investment.

  • We need to tackle inequality by achieving sustainable and inclusive growth.

  • And there are still gaps in the resilience of our financial system.

     

As President Juncker has made clear, we need to strengthen the single currency in the face of unforeseen challenges. Our two flagship projects of Banking Union and Capital Markets Union can help us meet this goal, by further integrating financial markets. This would:

  • help to absorb shocks through private risk-sharing,

  • better protect taxpayers from having to pay for the mistakes of the banking sector,

  • and reduce the need for public risk-sharing within the Economic and Monetary Union.

Our challenge is to use the current window of opportunity to finish what we have set out to do. This Parliament has a crucial role to play in that regard. So I would like to discuss with you three key objectives from now until the end of the mandate:

  • first, to complete Banking Union and the framework for the banking sector,

  • second, to accelerate the building of a Capital Markets Union,

  • and third, to embrace new forms of finance, including Fintech and sustainable finance.

Let me start with the banking sector. While we have already come a long way, we are still missing the third pillar of the Banking Union: a European Deposit Insurance Scheme. In our October Communication, we put forward ideas to help co-legislators reach an agreement on this key Banking Union file:

For EDIS, our original proposal from 2015 remains on the table. But we saw that in the last two years progress has been slow. We hope that our Communication will provide a new impetus to reach a compromise and to finalise an agreement still within this mandate.

In parallel, we need to further reduce risks in the banking sector. Our November 2016 package presented a host of measures to incorporate international standards and risk-reduction measures into EU law.

I would like to congratulate rapporteurs Gunnar Hökmark and Peter Simon on the recent political agreement on the bank creditor hierarchy, the International Financial Reporting Standard 9, and large exposure limits.  And I hope that deliberations on the rest of the package will be concluded quickly, so a political agreement can be reached as soon as possible.   

 

We also need to accelerate the trend of reducing non–performing loans, and prevent the stock from building up again. Next spring, we will present a package of measures on this basis. Among other things, it will include a blueprint for national asset management companies, and possible prudential backstop measures for new loans that turn bad. This is also related to our 2016 proposal on preventive restructuring and second chance for entrepreneurs, presented by my colleague Vera Jourova, where we hope for a quick agreement.

 

We are also looking into pragmatic solutions to help banks diversify their holdings of sovereign bonds. In this context, we are closely following the work of the European Systemic Risk Board on Sovereign Bond Backed Securities. Taken together, these measures form an ambitious but realistic path to finish what we have started, and to complete the Banking Union.

 

This work is part of an overarching priority to strengthen the Economic and Monetary Union. I am working closely with colleagues in the Commission on a set of proposals, which we will present on 6 December. One of the initiatives we are looking at relates to the European Stability Mechanism. It could be transferred into the Union framework, and assume a new function of backstop to the Single Resolution Fund. This is also important for completing the Banking Union.

 

Alongside our work for a safer banking sector, we need to make sure that rules governing derivatives markets are fit for purpose. In particular, Central counterparties, or CCPs are now a systemic part of the financial sector, and their importance is growing. We have presented three self-standing proposals on derivatives markets to strengthen financial stability, while avoiding undue fragmentation and costs.

 

I look forward to continued good cooperation with the rapporteurs on these files: Kay Swinburne and Jakob von Weizsäcker on CCP Recovery and Resolution; Werner Langen on the review of EMIR, and Danuta Hübner on CCP supervision. We count on your support for quick progress on these files.

 

Let me now turn to the Capital Markets Union. The Commission is working at full speed to create the right conditions for more funding to flow to the real economy. Brexit means the rest of the EU economy needs advanced capital markets more than ever.

We have already delivered two thirds of the original 2015 Action Plan:

  • Last month, Parliament voted in plenary to adopt new rules for simple, transparent and standardised securitisation.

  • And in mid-2019, new rules will take effect to help companies raise capital on public markets by simplifying prospectuses. 

Building on these achievements, we should work together in the coming year and a half to raise our ambitions for integrating EU capital markets:

 

One particular focus is to give consumers greater choice and better access to retail financial services:

 

  • For example, in June we proposed an EU-label to develop a pan-European personal pension product, or PEPP.

With PEPP, consumers would benefit from a simple and portable product with strong consumer protection.

It should unlock savings currently idling on low-interest rate accounts, and put them to more productive use. And it would be a voluntary product that would complement existing pensions. I welcome the commitment shown by rapporteur Sophia In't Veld on this priority file.

  • A second example relates to cross-border payment fees covering in particular the non-euro countries, where the Commission will propose new rules early next year. This will help ensure that Europeans pay reduced fees when transferring money abroad, or taking money out of cash machines during their holidays. the Consumer Financial Services Action Plan

     

  • And third, we are working on a proposal for early next year to address obstacles to cross-border distribution of funds. The aim is to increase the number of funds offered to citizens across the EU, without reducing investor protection.

     

Another focus is supervision. We recently proposed targeted changes to the tasks, governance, and funding of the European Supervisory Authorities. We need to ensure that they are equipped to better promote supervisory convergence and to address new challenges and risks. They should also help ensure that equivalence decisions are properly monitored and enforced. In line with the principle of subsidiarity, we are also proposing to expand direct EU-supervision to certain targeted areas.   

And finally, early next year we will come forward with an EU framework for covered bonds. It will build on well-functioning features of successful national markets.

These are just a few examples of what we are doing. Our aim is to have the right conditions and incentives in place by 2019, where we count on European Parliament support.

 

Let me finally turn to upcoming challenges and opportunities, such as the emergence of financial technology and sustainable finance. For Europe's financial industry to stay relevant in the face of future trends, we need to start preparing today.

When it comes to financial technology, Europe is well placed to become a global leader. This will require consistent regulation and appropriate supervision for Fintechs to scale up across the single market. The Commission is working on a Fintech Action Plan for early next year. And we are looking into EU-wide enabling legislation for crowdfunding and peer-to-peer lending.

 

We are also taking steps to boost digital payments in Europe. In the coming days, the Commission will present standards to guide the implementation of the revised Payment Services Directive, based on close consultation with relevant actors. To strengthen the security of online payments, we are making two-factor authentication the norm for payments above a certain threshold. This is already the case in some European countries.

And we are providing a safe environment for the development of new digital payment services, whether they are offered by banks or by Fintechs. The forthcoming standards will define rules for secure and reliable bank-Fintech communication, conditional on explicit consent from the client.

When it comes to tackling climate change and delivering the low-carbon transition, this is a major challenge, but also an opportunity for our financial sector. By putting in place the right conditions, the EU can become a magnet for green investment and lead the way in mobilising both public and private financing for sustainable projects. This will be a key issue at the upcoming summit on climate finance in Paris. I am looking forward to the final report of our High-Level Expert Group early next year. Building on its recommendations, the Commission will present an Action Plan on sustainable and green finance also still early next year.

Honourable Members,

A complete Banking Union, together with the Capital Markets Union, will help build the resilient and integrated financial system that citizens and businesses need. I count on the European Parliament to make real progress in the months ahead, so we can finish this important work still within this mandate.

 

Thank you very much.