Guten Morgen, meine Damen und Herren.
After 18 months of this pandemic, we are starting to see signs of recovery.
We’ve reached our EU-wide target of 70 percent of the adult population vaccinated by the end of the summer. And that has allowed much of the economy to re-open.
The EU’s recovery programme, Next Generation EU, has started delivering money to Member States to kick-start their investment and reform programmes.
So we can start to look ahead to a post-pandemic economy and society.
In the European Union, it is usually in times of crisis that we find the political determination and political will to make difficult decisions and undertake large-scale, ambitious, essential solutions.
The motto to “never waste a good crisis” is one in the European Union we are very familiar with.
The global financial crisis brought about an essential discussion about the future of the banking system in the European Union and led us to initiate the Banking Union.
To maintain the health of the Eurozone, it became clear that we needed to break the link between banks and their home countries.
We needed to develop a banking system which can easily and effectively work across borders - and more importantly we wanted that Banking Union to be based on strong banks, providing services in the EU single market.
Now we’ve made good progress, at first. But in the years since, progress has, regrettably, stalled.
I’m sure many among you are familiar with the ins and outs of this subject. And you’ve probably debated the topic inside out and upside down.
Now the conclusion remains fixed and there is agreement on this - that we need to complete Banking Union.
But, and again I say this with regret, not everyone agrees on how we should get there.
Of course, getting there - achieving Banking Union - requires making hard choices and reaching difficult compromises.
And so far we have not been able to do that.
I take no pleasure in this analysis - but we need to be honest - completing Banking Union is becoming harder as time passes.
And we have probably lost the attention of people less familiar with the discussion even more.
Now perhaps making Banking Union more accessible to citizens might help us unlock the blockages… so a discussion on why Banking Union is important for Europe and our citizens is one still worth having.
So far it’s been very limited to technical issues and terminology; rather than focusing on the value of strong EU banks working across borders, providing citizens with services and doing this in a competitive way.
Now a decade since that all too painful financial crisis, and we are dealing with another one – but with a completely different character.
Our banks have remained robust during the crisis caused by the coronavirus pandemic.
And indeed banks have helped deliver many of the support measures introduced by Governments during the crisis, to the rest of the economy.
This new crisis has also prompted questions – including, how relevant is completing the Banking Union in the post-COVID world?
As policy makers, we face many challenges as we emerge from this global health crisis – planning and financing a sustainable recovery, how and when to carefully taper support measures, fiscal policy, to name just a few.
So today, I want to take a step back. I want to revisit the fundamental question: why is completing the Banking Union still important?
And what do we need to do to make it happen?
If we need a crisis to make progress – as we have done in the past – let’s use this crisis to reinvigorate the Banking Union.
It is heartening to say that banks have proven resilient during the COVID crisis, and this is thanks in no small way to the reforms adopted after the financial crisis.
These reforms included the establishment of the Single Supervisory Mechanism and the Single Resolution Mechanism.
And they are the first two pillars of the Banking Union, and we managed to put them in place after the Eurozone debt crisis.
But we didn’t get any further.
Let me now deal with why it is so important for financial stability to go further, especially in these times of recovery.
Now of course COVID is an exceptional crisis. Not your usual financial bubble, or economic boom and bust.
Instead, an invisible virus brought everything and everyone to an abrupt halt - society and the economy were forced to stop functioning as normal.
The exceptional nature of the crisis led to exceptional but essential responses from public authorities.
Massive support was provided to those directly affected by the COVID crisis, and rightly so – businesses were kept afloat during lockdowns and households benefited from employment support and loan moratoriums.
And that action indirectly supported banks’ asset quality.
But we cannot assume that level of public support in a more typical crisis, and we need to prepare for that.
And that requires us to make sure industry-financed safety nets are effective across the EU in times of crisis.
For that, we need to complete the Banking Union.
That’s the financial stability rationale for a fully-fledged Banking Union.
But its benefits go further. It’s also essential for the EU banking sector.
The banking sector – in Europe and globally – is entering a period of major change.
Digitalisation is already changing the way we use financial services – the way we save, the way we pay, the way we invest – and even the nature of money itself.
Banks will have to adjust their business models and their operations.
To maintain the competitiveness of European banks in the medium term, we need a regulatory framework that can accommodate change.
Our system should foster consolidation where scale matters, including on a cross-border basis.
And we need to allow those banks who fail to adapt to exit the market in an orderly way, without threatening financial stability.
Banking Union is essential on both counts:
- Without mutualised safety nets, we will not reach the level of trust required between Member States to allow banks to operate fully across national borders.
- And without a fully effective, complete crisis management framework, market exits will not happen in a managed and timely manner.
So the question is – how do we achieve our goals?
The Commission supports the Eurogroup’s efforts to draw up an ambitious work plan for the Banking Union. It’s vital that discussions continue with the aim of reaching agreement before the end of the year.
The Commission’s level of ambition remains high.
We want to strengthen the second pillar of the Banking Union with a review of the crisis management and deposit insurance framework.
And we want to build the third pillar of the Banking Union - a European Deposit Insurance Scheme – or EDIS – and a solution for liquidity in resolution.
Progress on all of this should also unlock some of the difficulties around home-host issues and ring-fencing practices.
I’d like to give a few specific examples where we could improve the crisis management and deposit insurance framework.
- We can develop proportionate and consistent solutions to manage the failure of all types of banks, regardless of their size and business model.
- There are still differences across the EU that impact on the predictability of the current framework, such as how the Public Interest Assessment is applied. Now this, along with differences in national insolvency frameworks, could complicate how we handle a future cross-border banking crisis - if nothing changes.
- There’s further complexity arising from the fact that different conditions may be attached to similar sources of funding, depending on if they qualify as State aid or not.
So this review can help us achieve consistent and proportionate solutions, and to avoid incentives to use different solutions at national level.
The biggest remaining issue for the Banking Union remains the European Deposit Insurance Scheme.
And let’s be clear – Banking Union will only be complete once EDIS is in place.
EDIS can make national schemes less vulnerable to large local shocks.
A full Banking Union including EDIS means that if a bank fails, we protect financial stability and consumer confidence.
It ensures banks can keep providing finance to businesses and supporting the growth of our economy, while protecting EU taxpayers.
We are discussing the possibility of a hybrid model for EDIS as a first step - the co-existence of national deposit guarantee schemes with a common central fund.
Initially, EDIS would provide liquidity to national deposit guarantee schemes in need, enhancing depositor confidence and making banks more robust in a crisis.
We can design the hybrid model so that it would evolve over time.
But the Commission remains convinced of the need for a more ambitious EDIS set-up involving loss mutualisation in the steady state of the Banking Union.
And this is something which does not have the necessary consensus - yet - but we firmly believe that it is vital for the banking union to function and for it to be effective.
We also need a credible and robust mechanism to provide sufficient liquidity in resolution.
Other jurisdictions – the United States or Canada for example – already have such public mechanisms in place. In the European Union, we need to step up.
As I said, progress on common deposit insurance should also unlock some of the difficulties around home-host issues and ring-fencing practices.
Deeper market integration is vital for growth and resilience. It is also key if we want the EU banking sector to compete internationally.
But we know that more integration will take time. The Commission will also make sure that any changes will include safeguards for host countries - we want to ensure that resources are available when needed and that financial stability is maintained.
So in closing, I am cautiously optimistic about the prospects for the European economy - I think we all are more optimistic, compared with some months back.
The pandemic is, of course, not over 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’re making our way out of this unprecedented crisis in Europe.
And as policy-makers chart the route out of this crisis, our objective should be to set a course based on avoiding a future crisis – whether that crisis is in health, in climate, the economy or indeed in our banking system.
We urgently need to set things in motion to complete the Banking Union.
A complete Banking Union will enhance the resilience of our banking sector against different types of shocks. And it will help European banks navigate a period of change that has already started.
We need a comprehensive plan, with political consensus, so we can make progress on the individual pieces of the plan afterwards.
I hope we have learned from the pandemic.
I hope we are wise enough to plan strategically for the change that is ahead of us rather than being overwhelmed by it.
I hope we will have the courage to do what it takes and I urge all involved to see the prize of Banking Union and to work hard, to work fast and with one another to achieve it.