Interview with Delo
Interview with Danièle Nouy, Chair of the Supervisory Board of the ECB, conducted by Miha Jenko on 17 November 2014
Ms Nouy, you are the Chair of the Supervisory Board of the ECB. The ECB is now responsible for banking supervision in the euro area and carries out this task as part of the Single Supervisory Mechanism (SSM). What are your tasks, objectives, priorities?
The SSM is the first pillar of the banking union that was decided by European leaders in the aftermath of the financial crisis that hit our continent in 2008. The banking union is an extremely important step forward for European integration and towards a capital markets union. Banking supervision under the ECB establishes the conditions for a more integrated and reliable financial market across Europe. The reduction in the institutional and legal barriers between countries makes it easier for banks to access the capital markets. This should in turn give businesses and households greater access to a wider variety of safer and more suitable financial products. As supervisors, our task is to perform independent, intrusive and forward-looking supervision that will ensure a level playing field for banks’ operations, with the objective of addressing potential problems in a timely manner. We are currently focusing on the follow-up to the comprehensive health check of 130 banks, including the approval of the capital plans submitted by those which had a shortfall. The comprehensive assessment also highlighted that consistent supervision requires fully harmonised regulation in the euro area. So this is also one of our priorities. Another one is to thoroughly review the internal models banks use to calculate their risk-weighted assets.
Since 4 November 2014, the ECB has been directly supervising 120 significant banking groups in the euro area. However, there are 3,500 other banks in the euro area countries. How will the ECB provide the same standards of supervision for each of them?
As part of the general oversight that the ECB will exercise over the whole SSM, and by closely working together with the national competent authorities, such as Banka Slovenije, which are responsible for the direct supervision of the less significant banks, our commitment is that strong supervisory standards will be applied uniformly in the euro area for big and small banks alike. This will help eliminate regulatory arbitrage and national bias. Our job is to enhance confidence in banking supervision and help strengthen the creditworthiness of all banks under our direct or indirect supervision. So, we may not be supervising some banks directly, but we will set and monitor the supervisory standards that will apply to them. Moreover, the SSM Regulation provides that, to ensure the consistent application of supervisory standards, the ECB may decide, on its own initiative, to take over the direct supervision of a less significant bank.
The recent comprehensive health check of 130 banks, which account for nearly 82% of total banking assets in the euro area, identified a capital shortfall of €25 billion across 25 participating banks. What is your comment on that: are these figures higher than you expected?
We didn’t have a figure in mind before starting the exercise. No, the ECB’s goal was to conduct a rigorous assessment of the participating banks, before assuming their supervision on 4 November. The assessment was tough and exhaustive and it significantly boosted transparency in the banks’ balance sheets. The combination of the asset quality review with the stress test showed that the adverse stress scenario would deplete banks’ capital by €263 billion over the three-year horizon of the exercise. And the asset quality review found an additional €136 billion in non-performing exposures. These are the important figures here. May I also remind you that, since the summer of 2013, the banks that will fall under the ECB’s direct supervision have strengthened their balance sheets by more than €200 billion. One can assume that they did this in anticipation of the comprehensive assessment. In other words: the announcement of the tests alone helped to make the banks healthier and in turn helped to restore confidence in the European banking sector.
In the case of Slovenia, two state-owned banks, NLB and NKBM, were both considerably recapitalised at the end of 2013 after last year's asset quality reviews and stress tests. However, they each showed a capital shortfall of €30 million under the adverse scenario. What action is required for these two banks right now?
I ask for your understanding that I cannot comment on individual institutions. Banks at which a shortfall was identified under the comprehensive assessment were required to submit capital plans by 10 November, detailing how the shortfalls will be covered. ECB Banking Supervision will interact with the banks and will then issue a capital decision that banks will have to implement.
Slovenia is a country with predominantly state-owned banks. Are banking failures characteristically related to their form of ownership (private, state)?
A failure usually has to do with the business model and the corporate governance of a bank, irrespective of its ownership. The supervisor’s job is to identify possible problems in a timely manner in order to impose corrective actions before the situation deteriorates too much. And, believe me, a supervisor has a comprehensive toolbox to correct problems.
Banking supervision decisions could have major repercussions for European taxpayers. Could you assure us that the SSM will prevent banking crashes and consequently taxpayers’ costs in the future?
It should be clear that taxpayers should not foot the bill in the future. Regulation clearly sets out when investors are to be bailed-in and this should hopefully be sufficient in the event of a future banking crisis. Our priority now is to complete the recapitalisation of those banks at which the comprehensive assessment uncovered shortfalls. Over the coming period, Member States need to deliver on the commitment to establish an appropriate borrowing capacity for the Single Resolution Fund; but the banks will have to pay back the loans taken up by the Fund for additional resolution financing. As supervisors, we are now much better equipped to deal with banking crises and we are therefore in a position to protect taxpayers’ money. European supervision will of course not completely eliminate the risk of bank failures or even bank crises, but it can help prevent one failure from triggering a chain reaction.
Do you generally consider European banks a safe place to deposit or invest our money?
To tell you the truth, I am not an investment advisor. In fact, having been a supervisor all my life, I was never allowed to make any investments in bank stocks. But as a supervisor – and because we have just conducted an exhaustive comprehensive assessment – I can tell you that, yes, European banks are a safer place for depositors thanks to the SSM and the banking union. On 4 November we witnessed the start of a new era for the euro area.