John Berrigan became Director-General for DG Financial Stability, Financial Services and Capital Markets Union (DG FISMA) on March 4 2020. Before that, he had been Deputy Director-General since December 2015. He talks about his first year – obviously not entirely as he expected – as well as the main challenges he sees ahead and, on a more personal level, what his experience has been of the Covid-19 pandemic and lockdowns.

It’s been almost a year since you took the job of director-general – and it has been quite a year! What would you say have been the biggest challenges – and the greatest rewards?

One of the biggest tests for me was starting a new job – which is always challenging – under such unusual circumstances. Here, the big challenge was just keeping the DG functioning on a remote basis. I think that in general, in the Commission and in FISMA, that has gone quite well: we’ve kept productivity up but I don’t underestimate the impact on staff and their families. We need to listen to concerns and keep adapting our approach to a continuously evolving situation. This includes paying particular attention to all issues related to well-being.

Similarly, from a policy point of view, the main challenge was to deliver the agenda of the DG for the year and adapt it to respond to the new issues raised by the pandemic. We delivered our planned commitments: in particular, we issued the capital markets union (CMU) action plan; the digital finance action plan, the anti-money laundering (AML) action plan and started preparing a renewed sustainable finance strategy. As well as that, we anticipated the need for a rapid reaction to the Covid crisis. We got the banking and CMU recovery packages through in record time. Of course, this was not just down to us, but to other parts of the EU financial infrastructure too – the Single supervisory mechanism (SSM), the European Central Bank (ECB) – and the Member States and European Parliament. So, overall I’d say our big achievement in terms of policy has been delivering the full agenda while also reacting quickly and flexibly to the Covid crisis. Of course, you can add to this the extra challenge of welcoming a new commissioner, Mairead McGuinness, and preparing her for her successful hearings in front of the Parliament.

How great do you think the effects of the pandemic will be on the European banking and capital markets sector?

The first thing to note is that the current crisis is very different from 2008-2009, in that the financial sector has not been front and centre of events this time. That’s because this has been a shock that has come from outside the financial sector – a so-called ‘exogenous, symmetrical economic shock’. But, as the focus gradually moves on from the pandemic and more to economic recovery, I suspect the financial sector is going to become more central to events.

The banks entered the current crisis in relatively good shape, thanks in part to the ambitious reforms adopted after the 2008 crisis. As a result, the economic implications of the pandemic have not resulted in major stress on the banking sector. On the other hand, we know that economic activity has been severely impacted by repeated lockdowns and, in consequence, there will most likely be a significant increase in non-performing loans coming down the line at some point. This will inevitably impact banks’ balance sheets. The tests that have been conducted so far suggest that, in general, the banks can withstand these likely developments. But, there is always a risk that some banks will find it more challenging to manage and could encounter financial stress. So, the Commission has adopted a non-performing loans (NPL) action plan just before Christmas with a view to ensuring the banks and policymakers are as prepared as possible for any surge in NPLs. The need to “get out in front” of any problem with NPLs is a key lesson learnt from the previous crisis: we need to act early. All that said, there may be vulnerabilities in the banking system, but not anything like what we were facing 10 years ago.

As for capital markets, they have also performed rather well during the crisis. There was an episode of volatility in March last year in the early stages of the lockdown while the markets adjusted to the new situation. But, this volatility was managed and since then the markets have functioned well. Possibly more worrying or at least something we need to keep a close eye on is that valuations have continued to rise, while the real economy has been under heavy pressure. This means we will have to be careful and monitor those valuations very closely as we head into the recovery phase and some of the support measures are reduced or taken away. There may be scope for valuation corrections. We will have to be prepared for possible further episodes of volatility.       

Finally, looking further ahead, I would say this crisis has shown that the financial system can function on a very decentralised basis. Markets this year have been run largely on a remote basis, which is very impressive and perhaps not something any of us realised was possible. People and businesses have moved in even greater numbers to online payments and digital banking. I think this enforced decision to go remote will not be fully reversed and will have significant long-term effects on the structure of the financial sector.

As we start the New Year, what do you think the biggest priorities will be?

Ideally, a good manager should not have more than three priorities… but in reality we have a lot more than that for 2021. I think you can divide these priorities into those that are focused on developing the EU financial system and those that are more focused on maintaining the system we already have in place.

Among those focused on developing a new system, the biggest short-term priority will be building a new relationship with the UK and the City of London post-Brexit. We’ll have to work to put in place a memorandum of understanding that, while not settling our relationship, will provide a framework in which to develop and manage it. Part of the new agenda will of course be further deepening the CMU, because developing our capital markets is part of building our relationship with the UK. And then we must continue to work on the Banking Union, where we are also looking to amend the framework to complete an important evolution of the financial system. We will also have to take care of the financial aspects of the twin transitions that are included in the Commission’s work programme: the financial aspects of digitalisation (digital finance) and the financial aspects of the Green transition (sustainable finance). The latter will involve work on, for instance, non-financial reporting and green bond standards.

Then we have to deliver what is needed to maintain the existing system. This includes many legislative reviews. We have two legislative reviews on capital markets: the MiFID review and the AIFMD. Alongside that, there will be a review of Solvency II, where we will have to review the framework for the insurance sector and the completion of the Basel 3 reform for banks. In addition, we will present a legislative proposal in relation to anti-money laundering.

The Covid-19 pandemic has brought huge changes to all our lives – the way we work and how we communicate with friends and loved ones. At a more personal level, how have you experienced these past few months?

I think my experience has been fairly typical. I haven’t seen my daughter or my extended family for nearly one year and have been relying on technology to stay in regular contact. From a work point of view, I’ve been working remotely for the best part of the nine months. I must admit that I miss the more social aspects of my job, which usually involves meeting a lot of people physically. Of course, these meetings can take place remotely, but it’s really not the same. One lesson for me personally from the crisis, which I will take forward, is the possibility to reduce my business travel and rely more on technology. Finally, like everyone else, I wish the pandemic was over! But, we have to keep our collective spirits up and focus on the light at the end of the tunnel.