Interview with Helsingin Sanomat

Interview with Danièle Nouy, Chair of the Supervisory Board of the ECB,
conducted by Anni Lassila on Monday 12 September 2016 and published on 21 September 2016

Is it a problem for you that big banks, for example Nordea, operate in the euro area and are not under your direct control?

The law states that banks have the possibility to operate as a branch, so we therefore have no say in that decision. We must only ensure that the division of responsibilities between the home country supervisor and the euro area host supervisor runs smoothly. We have had initial discussions with the Swedish supervisor, and the Finnish banking supervisor was naturally involved. I have no reason to suspect that cooperation would not run smoothly.

What is your biggest worry regarding the euro area’s banking system?

Profitability is very important, because it enables banks to strengthen their capital position.

Many economists think the next crisis will come from the banking sector, that the building up of risks in for example Italian or German banks has not ended. What would you say to them?

We are working all the time to reduce the risks. This week we distributed a set of guidelines for consultation about how banks have to prepare plans to reduce their non-performing loans. In addition, important changes have been made in legislation in many countries, such as Italy, to speed up the repossession of collateral.

More generally, Italian banks have lots of legacy issues with bad loans and also there are market concerns about whether Unicredit and Monte dei Paschi will be able to recapitalise. On the whole, how confident are you that Italian banks can solve this?

As a matter of policy, we do not speak about individual banks. However, I am very confident that measures taken to address problem loans will be successful. The banks covered by joint supervision will be able to resolve their difficulties.

The Italian government has conducted negotiations with the European Commission about flexibility arrangements regarding rules on State aid, and there have been vocal demands from within Italy to protect retail investors who invested in bail-inable debt instruments. Is it possible that the EU’s rules will be bent once again when a country of sufficient size demands it?

From my point of view, Italy is a country like any other, and I do not believe that the rules will be changed for the demands of a single country. The world changed at the beginning of this year, when the Bank Recovery and Resolution Directive entered into force. As long as it remains in force, it is the governing rule. And there is currently no indication of any change to this.

Do banks have something to learn about selling convertible instruments to retail customers - that they really have to stress the risks involved?

As a general comment, authorities responsible for consumer protection and market supervision should be very alert to ensure that retail investors are fully informed of the risks they are assuming with instruments that are not risk-free.

Banks are frustrated about constantly rising levels of regulation coming from Brussels and Basel. Do you think we are close to the level that is needed for a healthy banking sector or is there more to come?

Uncertainty is the worst thing for banks. It is very difficult for them to rethink their business model when there is uncertainty about the final capital requirements. We also expect that capital requirements do not rise significantly further from the current level.

But we must not forget where we come from. The financial crisis showed that banking regulation had to be entirely rethought.