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September 05, 2018

While speaking at the Eurofi Financial Forum 2018 in Vienna, Peter Praet of ECB talked about creating an enabling environment for pan-European banks in the Banking Union. He highlights that, in recent years, the European Union has achieved major progress toward financial integration. EU now has a single supervisor and a single resolution authority, with banks being subject to the same European rulebook.

The Banking Union also contributes to providing effective mechanisms for cross-border risk-sharing and broadening the sources of funding within a country, thereby promoting macroeconomic stability and growth. However, the following obstacles that hinder the fungibility of capital and liquidity of banking groups can still be observed:

  • Number of national options and discretions are hindering the practical application of cross-border liquidity waivers within the Union.
  • The proposal to have cross-border capital waivers within the EU was not taken forward in the ongoing review of the CRR, which is a missed opportunity. Some national authorities are concerned about the possible financial stability implications of the proposal. However, such concerns could be addressed by making the waivers subject to additional prudential safeguards and by putting in place appropriate transition arrangements that account for the planned further progress on the Banking Union.
  • The major progress made in Banking Union needs to be recognized in the international regulatory framework. The international regulatory framework should recognize the progress that has been made in the Banking Union and exclude intra Banking Union positions from the cross-jurisdictional indicators in the global systemically important bank (G-SIB) methodology.
  • The allocation of internal minimum requirement for own funds and eligible liabilities (MREL) has turned out to be an area of tension between national jurisdictions. Jurisdictions with a foreign bank subsidiary prefer to have a high pre-positioning of internal MREL to ensure an orderly resolution of its local subsidiary. However, this implies a certain degree of ring-fencing to the detriment of the foreign parent bank. The compromise reached by member states in the Council only allows that internal MREL is waived if the resolution entity and the subsidiary are located in the same member state. To account for the progress in terms of joint supervision and resolution among euro area countries, internal MREL waivers on a cross-border basis in the Banking Union should be allowed, as this would contribute to continuous cross-border banking. Therefore, it should also be possible to use guarantees to replace internal MREL and allow for more flexibility in the allocation of resources within the Banking Union.

 

Related Link: Speech

Keywords: Europe, EU, Banking, Banking Union, Pan-European Banking, Orderly Resolution, ECB

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