The S&D group in the European Parliament believes that the competitiveness of the banking sector will be strengthened not by weakening the regulatory framework, but by deepening the internal market, in particular through the completion of the banking union, in a note published on Tuesday 21 April.
The general idea in the report is as follows: “The best way to increase competitiveness in the banking sector in Europe is through the single market”, said Jonás Fernández, the S&D group’s coordinator on the European Parliament’s Committee on Economic and Monetary Affairs (ECON), in an interview with Agence Europe the previous day. Contrary to the industry and certain MEPs of right-wing political groups, “we don’t think that we should water down the current prudential framework”, he added, stressing the need to “reduce fragmentation” within the single market.
Banking union. According to the MEP, the ECON Committee’s position on the banking union of April 2024 still serves as a working basis (see EUROPE 13394/1), even though a legislative proposal from the Commission has been on the table since 2015 (see EUROPE 11881/1). At the end of the previous legislative term, MEPs advocated the creation of a European deposit insurance scheme (EDIS) that would provide liquidity support once national schemes had been fully mobilised.
According to Mr Fernández, completing the banking union would make it easier to deal with a number of related issues, including the adoption of measures to allow capital and liquidity to circulate more easily within a banking group, while maintaining guarantees for countries hosting branches of these groups (‘home/host’). It would also be easier to differentiate the rules according to the systemic nature of a banking institution.
“There are hundreds of millions of euros in the banks’ balance sheets in Member States that they cannot allocate freely around the banking union. This is something that we cannot understand well even that we have a single supervisor”, commented Mr Fernández.
In its document, the S&D group recommends reducing the national discretions granted as the banking market is harmonised, or added by the Member States when transposing European directives. It also calls for the standardisation of key retail banking product features and for greater convergence, perhaps through the introduction of voluntary pan-European insolvency and tax regimes.
“Europe’s real weakness is not traditional balance sheet banking as such. It is in capital-light, scale-driven activities – investment banking, market-based finance, digital financial services – where size and market integration are decisive. The EU does not offer that in practice. Banks operate across a patchwork of legal frameworks, product rules, tax treatments, consumer protection regimes, insolvency and collateral enforcement systems, and reporting requirements”, the report’s authors note.
The Spanish Socialist also advocated a revision of the European competition framework to facilitate bank mergers. “We need more cross-border activities”, he said, although he felt that the scope of banks’ activities should be decided by the market itself.
Simplification. With regard to the ongoing debate on regulatory simplification, Mr Fernández is not opposed to “a more proportionate approach” to banking prudential rules, provided they are not weakened. “When some stakeholders talk about some simplification, what they are talking about is reducing the framework. We do not agree with this approach”, he said.
However, he admitted that with the large number of supervisors acting at national and European level, and taking decisions relating to the holding of capital, it is difficult to “internalise the effect of these decisions”. In his view, simplification is possible in this area, particularly with regard to the capital stack, as recommended by the ECB (see EUROPE 13850/19).
Finally, when asked about the main differences of opinion between the S&D and EPP groups on how to strengthen the competitiveness of European banks, Mr Fernández mentioned, in addition to the rejection of a weakening of the regulatory framework, the opposition of the Social Democrats to the industry’s request to add competitiveness to the mandate of the European financial supervisory authorities, as the United Kingdom recently did.
When it comes to finding “a trade-off” between the competitiveness and soundness of the banking sector, this must remain the responsibility of the European legislator, he said. And he warned against the temptation to compare the European Union with the United States or the United Kingdom which, unlike the EU, have a genuine single market and where banks finance the economy less.
See the S&D group’s position: https://aeur.eu/f/lme (Original version in French by Mathieu Bion)