Interview with Hospodárske noviny
Interview by Danièle Nouy, Chair of the Supervisory Board of the Single Supervisory Mechanism (SSM),
conducted by Jakub Mendel, 24 October 2014
At the beginning of November, the Single Supervisory Mechanism (SSM) for the supervision of the banking sector in Europe will be launched. And you will be heading it in the coming years. It seems that, apart from Angela Merkel, there will be another powerful woman in the European Union.
In fact, it will not be only me heading the SSM – it will be two women. Sabine Lautenschläger, who is also a member of the ECB’s Executive Board, will be the Vice-Chair. It is a pleasure for us to work together as a team, also together with the other members of the Supervisory Board. Managing important tasks, as is the case here, would be difficult without support.
Anyway, you will occupy the highest position. How do you feel about being at the helm of such a significant European-wide project?
I am and have always been very pro-European. Every European country on its own, even bigger ones like my home country, is too small in the context of today’s global economy. We need to be together in order to be stronger. And I am very honoured that I was chosen to run this project and foster cooperation at a pan-European level in this field. Also, I enjoy working at an international level; I find true joy in it.
In your view, what will be the most significant contribution of the single supervision to the European project?
I think that the economic crisis, triggered by the banking crisis, has shown that we need to strengthen supervision. I believe that within the SSM, we can have the best of both worlds. We have a certain distance in decision-making, on one hand, and the independence guaranteed by the European Central Bank. On the other hand, however, we can draw on the analyses and local knowledge conveyed to us by our partners from the national authorities. Moreover, if we want a banking union in Europe, we also need a single supervisory mechanism as its main pillar (together with a single resolution mechanism and a common deposit guarantee fund).
During the crisis, several countries, including Ireland and Spain, for example, came under great pressure due to their problematic banking sector. Can we assume that, once the SSM is in place, this will not happen again?
It certainly cannot be promised that there will be no future crises in the banking sector. I can say, however, that we will be better equipped for such cases than we were in the past. And not only when it comes to the SSM. The banking union will also bring the Single Resolution Mechanism and a common deposit guarantee scheme.
Although this is a relatively large-scale project, Europe has prepared it within a year. What were the greatest obstacles you have had to overcome?
Probably the lack of time itself. Even though we had the possibility to extend this period by further six months, we did not consider this to be an option. On the one hand, that complicated things by putting more pressure on us, but it also had certain advantages. If you have more time, you often waste it in long discussions that are not always useful. But when you are short of time, you need to keep the drive and greater discipline. And this has worked very well. It was a challenge. I would say there was the spirit of a start-up and the sense of creating something unique.
You had to recruit a large number of staff in such a short time span.
Yes. Moreover, we needed to recruit the best possible candidates. We received many applications from excellent people who wanted to be part of this project. Therefore, it was not a problem to find them. Nonetheless, it was a challenge to recruit about one thousand people in less than 12 months.
Can you thus definitely confirm that this has been accomplished and that the first phase of the banking union will indeed already be launched on 4 November?
There is no doubt about that. The work has been done and we are ready.
During the preparations, you certainly cooperated closely with the individual central banks. What was your experience with Národná banka Slovenska?
Honestly, it has been a great experience. Národná banka has done an excellent work in preparing the supervision, as well as in reviewing the quality of banks’ assets. It provided us with high-quality data, always on time. It is certainly one of the “best students in the classroom”.
You have mentioned the asset quality review, known as the AQR, and everybody is waiting for the results to be announced. Although the results will only be published on Sunday, and are under embargo until then, I would like to ask at least generally: can we expect any significant changes on account of the results of the asset quality review?
As regards the review, we have done what we were supposed to do. The aim was, in particular, to make the banks’ financial statements more transparent, to make sure that investors in banks understand what there is in these banks’ balance sheets, to check the correct valuation of the banks’ assets and the collateral against which they are lending. Conducting the AQR has been very useful for us and the results are extremely valuable as part of the comprehensive assessment, which also included stress tests into which we could feed the results of the AQR. Should the results show that some banks face capital shortfalls, the banks will be required to cover them, primarily from private sources.
To put the question differently: are the banks ready for the SSM?
Yes, they are.
Some bankers, however, do not hide their view that the financial market is overregulated, and they perceive the SSM as an additional burden.
The opposite holds true. For example, the larger banking groups that have been supervised by several national central banks expect a certain degree of simplification, in that reporting procedures and the implementation of regulations will be harmonised. Slovakia will be one of the countries benefiting from this. The three largest banks in your country are directly supervised, as each is part of a banking group, from a different country. By unifying supervision, the risk of misunderstandings among the different national supervisors will be reduced.
Isn’t single banking supervision just another regulation for the banks?
It is not. It is a consistent way of implementing regulations for large banks and internationally active banking groups. That is also why there is a general consensus among these financial institutions with regard to supporting single supervision.
What is your personal view of the matter of the regulation of banks? Do you think the sector is overregulated?
No, I do not think that the banking sector is overregulated.
Let us go back to the SSM. Can it be assumed that it will contribute to strengthening the position of traditional banks as the main channel of the flow of money to the euro area economy?
Yes. The construction of the banking union, as well as the assessment of banks’ assets, should contribute to strengthening the creditworthiness of banks. That in turn should give them easier access to equity and other sources of funding. The cost of funding could thus even be lower, which should enable them to finance the economy more substantially.
After the lessons learned from the crisis and given the current state of banking within the Monetary Union, wouldn’t it make more sense to concentrate on developing alternative channels of financing the economy, instead of strengthening the position of banks?
Entrepreneurs and firms already have the possibility to raise funds by other means, for example through various funds or crowdfunding, but access to bank loans is very important in Europe, and a healthier banking sector as a result of the SSM should better support economic activity.