Pentti Hakkarainen of ECB on Importance of Implementing EDIS in EU
Pentti Hakkarainen of ECB spoke, at the European Bank Executive Committee Forum organized by BNP Paribas in Brussels, about how the euro area and the Banking Union are helping to facilitate financial integration. He also outlined the role of the globalization of regulatory standards toward facilitating financial integration, along with the importance of implementing a common deposit insurance system in Europe.
He highlighted that an international level playing field is a necessary building block to achieve an integrated and truly competitive banking market. It is also good news for efficient incumbent banks that are, in such an environment, enabled to compete efficiently across a wider set of markets—and can potentially reach more clients. To this end, the single European rulebook provides the highest degree of harmonization in banking standards that has existed to date, said Mr. Hakkarainen. There is still some progress to be made in closing down the remaining unnecessary options and national discretions in certain areas of legislation. Nonetheless, the largely harmonized rulebook is a valuable building block for an integrated banking market—with a high degree of cross-border contestation. Moreover, the private sector is evolving in a way that supports integration and competition. Technology is vitalizing cross-border market forces, including in the retail sector. As consumers increasingly move toward use of digital interfaces in their communication with banks, it potentially becomes easier for cross-border competitors to enter domestic markets. Bringing over a digital platform need not imply the same investment in fixed costs as is necessary to develop a physical branch-based footprint in a new country. This reduced cost of entry will help ensure that competitive impulses are spread across Europe.
Moreover, he added that banks are increasingly offering more standardized products from country to country and mortgages are becoming increasingly similar from one country to the next. Thus, he believes that “the overall trend remains in the direction of further integration. It is important that we continue to build the regulatory and institutional architecture for the banking sector around this reality.” In this context, it is urgent that Europe proceeds in implementing the third pillar of the Banking Union—a common deposit insurance system. While supervisory and resolution decisions are now taken at the European level, deposit insurance schemes remain at the national level. Protection of depositors is not uniform across Europe and may be influenced by the location of the bank. He added that a few member states have been reluctant to support progress in building a single, full-fledged European deposit insurance scheme (EDIS). This is driven by concerns about such a scheme resulting in cross-subsidization of weaker banking systems using the financial resources of stronger countries. Mr. Hakkarainen believes that such concerns are unfounded; they fail to understand how limited the risks are in terms of exposure to losses and cross-subsidization for well-constructed deposit guarantee schemes. He then encouraged the skeptics of the European deposit guarantee scheme to read the recent ECB research paper, which empirically demonstrates how limited these cross-subsidization risks are, provided that banks pay appropriately designed risk-based contributions to finance the deposit insurance fund.
He concluded by encouraging “legislators, supervisors, and market participants to all accept that financial integration—particularly within the Banking Union—is both welcome, and is a long-term trend that is here to stay. Future plans should reflect this, and should seek to harness further the resulting competitive forces—thereby creating benefits for all sides.
Related Links
Keywords: Europe, EU, Banking, EDIS, Deposit Insurance, Banking Union, ECB
Related Insights
|
News
US Agencies Propose Revisions to FFIEC Reports 031, 041, 051, and 101US Agencies (FDIC, FED, and OCC) propose to extend for three years, with revision, FFIEC 031, FFIEC 041, FFIEC 051, and FFIEC 101.
February 21, 2019
WebPage
Regulatory News
|
|
News
OFR Adopts Data Collection Rule on Centrally Cleared Repo TransactionsOFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.
February 20, 2019
WebPage
Regulatory News
|
|
News
FHFA Finalizes Rule on Federal Home Loan Bank Capital RequirementsFHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.
February 20, 2019
WebPage
Regulatory News
|
|
News
PRA Publishes PS4/19 on Loss-Absorbency Mechanism Under Solvency IIPRA published a policy statement (PS4/19) that provides feedback on responses to the consultation paper (CP27/18) on adjusting for the reduction of loss absorbency where own fund instruments are taxed on write down under Solvency II.
February 20, 2019
WebPage
Regulatory News
|
|
News
SRB Publishes Framework for Performing Valuations in ResolutionThe framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.
February 19, 2019
WebPage
Regulatory News
|
|
News
BIS Paper on Effect of Securities Lending on OTC Market LiquidityBIS published a working paper that studies how securities lending affects over-the-counter market (OTC) liquidity.
February 19, 2019
WebPage
Regulatory News
|
|
News
US Agencies Extend Consultation Period for the Proposed SA-CCRUS Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.
February 18, 2019
WebPage
Regulatory News
|
|
News
FED Extends Consultation Period for Stress Testing RuleFED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.
February 15, 2019
WebPage
Regulatory News
|
|
News
EBA Single Rulebook Q&A: Third Update for February 2019EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.
February 15, 2019
WebPage
Regulatory News
|
|
News
SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBSSEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.
February 15, 2019
WebPage
Regulatory News
|
