Ladies and gentlemen
Thank you for taking part in this virtual roundtable.
I can only join you now because I have just been with the press to present the Recovery and Resilience Facility: one of the pillars of the EU’s recovery strategy.
As many European countries carefully ease their lockdowns, there are glimmers of optimism that we may soon have seen the worst of this crisis.
However, the pandemic is far from over.
By necessity, we still have limits on our private and professional lives to contain the spread of the virus. Economic activity remains constrained.
The next weeks and months will be critical for smaller businesses in particular, not to mention households and consumers in general.
Many of them are going through illness, unemployment and a fall in income.
Most businesses face disruption in supply chains, temporary closures and weaker demand. Those who have no revenue, or very little, are already unable to meet their payment obligations.
And many consumers are finding it difficult to repay mortgages and other loans.
If they cannot pay an insurance premium, for example, they risk losing coverage altogether.
That goes for businesses too. While they may have assumed they were covered for virus-related losses, their cover may not have materialised as expected.
Foreclosure action taken on household and business property could result in lasting damage, following liquidity strains that are, in fact, temporary. And long-term damage is what we really need to avoid for our wider economic recovery.
It is in all our interests - including the financial industry - that consumers and businesses get through this difficult period before the rebound starts in earnest.
For a long time, we have been saying that it is vital to keep credit flowing to the real economy, to make sure enough liquidity is in place for those who need it.
Financial institutions and national public authorities across the EU have put a series of measures in place to provide that liquidity – including moratoria on payments of credit obligations, for consumers and businesses.
For households in particular, this should help them avoid the property foreclosures that I mentioned earlier.
The banking package that the European Commission presented in April helps to clarify the regulatory treatment of these and other measures.
It encourages banks to use all the flexibility in EU prudential and accounting rules to keep liquidity flowing. And it gives further relief to support lending to the real economy.
I would like to thank the financial sector representatives here today for all the efforts that you have been taking in this regard.
Unfortunately, it has not all been plain sailing.
That is why we are meeting now: to find ways to solve the very real problems faced by companies and households.
We are proposing a practical discussion between financial institutions and their customers about what the private sector can do under these particular circumstances - beyond the public measures that are already in place.
And I welcome the recent joint statement by small and medium-sized enterprises and banks with Recommendations for Improving the Flow of Credit to SMEs.
To start with, what we see is that the measures taken across the EU vary considerably by country.
There are voluntary measures taken by the industry as a whole or just by some institutions. In some cases, all affected consumers and businesses can benefit. In others, eligibility criteria are strict and gaining access can be a lengthy process.
So the first objective of today’s roundtable is to share best practice in this area – and avoid damaging fragmentation.
We need a collective and coherent European effort to provide relief to business and households.
There are substantial differences in the length of the period for which the payment deferral schemes are granted and who bears their final cost. Scheme features also vary: for example, whether the deferral is interest-free or not.
That said, the Commission very much welcomes these schemes in the banking and non-bank lending sectors. Consumers and smaller businesses in the most affected industries are already making good use of them.
But it is important to make sure that these schemes do not cause harm, such as by changing contract terms to the detriment of borrowers.
That means no higher interest or premium rates in the future.
No hidden fees, no other extra charges, and to the extent possible avoiding excessive collateral requirements.
It is equally important that these schemes provide suitable access to lending, especially for small and medium-sized enterprises. The same goes for non-bank lending, and leasing in particular.
This brings me to today’s second objective: making sure that the schemes are implemented effectively and at the appropriate time for those who need them more.
These principles of fairness should also apply to similar schemes offered by the insurance sector.
I will return to this a little later.
I would like to mention some other measures, such as credit guarantees and subsidised funding schemes.
While most of these are backed by public funds, banks play an important role in making sure they are effective.
They should pass on the advantages of public guarantee and subsidised funding to borrowers.
We designed the banking package to make it easier for banks to lend, which is already a major step forward. It grants prudential relief for banks to use freed-up capital and liquidity to channel funds to businesses and households directly affected by the pandemic.
Due to the difficulties that borrowers are now facing, that extra liquidity would not otherwise be available.
However, banks should not reduce or cross-subsidise lending to other firms or use the guarantees to fund financially unconstrained firms.
Lastly, all this good work and effort should not get lost in bureaucracy. It should reach business and consumers in practice and on the ground.
Moving onto the insurance sector:
Insurers have also been working hard to maintain normal service and help their policyholders during this crisis. They are offering many voluntary initiatives and similar schemes to the lending moratoria.
These include adjusting or suspending premiums and contributions, extending or cancelling premium payments, and switching between tariffs.
As a show of goodwill, sometimes there is compensation going beyond the strict contractual minimum.
Business interruption is a particularly sensitive area. Here, the terms and conditions of policies – and their interpretation - vary between insurers.
Some insurers are obliged to compensate policyholders – smaller businesses like restaurants, for example – for having to close their doors due to the pandemic.
Other policyholders may not receive any compensation at all.
Unsurprisingly, small businesses holding this type of insurance policy are frustrated at their unequal situation.
This has led to litigation in some cases; in others, to intervention by public authorities to bring about some degree of coordination.
As a guiding principle, it is important to strike a balance between providing as much support to businesses and households as possible, upholding contracts, and protecting the financial solidity of the insurance sector.
Looking ahead, we will also need to reflect on how best the insurance sector can cover pandemic risks.
Some ideas have already been floated, and the Commission is ready to engage fully in these discussions.
So there is a lot of food for thought. For today’s meeting, I would like to understand better how all these different measures have worked on the ground.
I would also like to discuss how we might approach the need to lend in a more systematic way.
Voluntary and national initiatives often cause unequal situations where consumers or companies may be treated differently from one another.
But in particular, I would ask these questions:
- Are the measures effective and focused enough to help those genuinely in need?
- Are the differences between national measures across EU countries justified? Or even those between companies?
- Can consumers and businesses access them without too much red tape?
- What can be improved, what other initiatives from the financial sector might be useful?
This is not something we should overthink.
The bottom line is to support the EU economy, to help companies of whatever size, and their workers to get through this crisis.
And we can do that together, by keep the liquidity flowing in the most efficient way to those who need it. Thank you and I wish you a useful and fruitful discussion.