Interview with Bloomberg
Interview with Pentti Hakkarainen, Member on the Supervisory Board of the ECB, conducted by Nicholas Comfort on 29 June 2018
Are you happy not to be a banker in today's world with negative interest rates, FinTech companies and common supervision?
I was happy there and I expected to one day see a common supervisor that guaranteed a level playing field for banks. In banking, the cross-border world functions seamlessly, so banks need a supervisory authority which matches the structure of their business. I don't think it's harder to be a banker today. As in any other business, you need to earn your living. That's always been the case. But it was a very good experience for me.
What has the ECB learned from cross-border onsite missions?
Onsite missions are a crucial element of supervision. They bring in additional information. The majority of our onsite missions are run by local authorities, and this will continue. However, we are keen to increase our number of cross-border missions because they give us an extra safeguard. Any of us as local supervisors have the potential to frame issues too narrowly and when they get explanations on their inquiries they can sometimes start to understand too much. When onsite missions are led by non-national members, it gives you that sort of safeguard.
You wanted to double the number of onsite missions this year compared to last, what will the focus be on?
Mission planning is based on what needs to be checked. In some banks it may be governance issues or risk management, or shipping loans. It varies. Banks are quite similar in what they do: offering financial services to individuals or corporate clients. But the ways of doing business are very different. Business models can differ, their corporate structure can differ. That's why you need tailor-made plans.
On Brexit, the ECB told banks to apply by the end of June to ensure enough time for their license applications to be processed by March 2019. How many applications have you had?
The discussions have been with 50 banks and the number of applications is about 20. If banks want to continue their business as it is, they need to take account of the possibility of a threat to their single passport. We'll know the final state when the political decisions and agreements are in place.
ECB officials have said that over 100 banks operate in the EU via UK licenses, so 20 is just a fifth. Isn't it worrying in terms of a bottleneck? Are there financial stability risks?
It's up to the banks. They need to have plans and if we can assist, we do. We are active in avoiding adverse impacts from banks not being prepared. But, we shouldn’t run businesses on their behalf. Private sector firms adapt to their conditions. Banks had cross-border activities before passporting was invented, and some may think they can continue that way. What’s most important is that we have a seamless, functioning system in the euro area.
What about other risks to financial stability from Brexit?
Cross-border activity isn't that big between the U.K. and the continent in direct borrowings and loans or even in the case of debt and equity issuance on capital markets. Our overall assessment is that there wouldn’t be a serious threat to financial stability in the euro area due to Brexit. Banks need to be ready to absorb those risks that will emerge. When I used banking services at Outokumpu, we hedged our 12 currency exposures using the City and other financial centres, but London was very important. It was a good, stable place for financial activities and now there is a dent in that certainty.
Where could the next crisis come from and which source would worry you most?
It is continuous work here. Most banks are doing quite well, some extremely well. We have also seen positive developments among problem cases. Just the existence of the SSM has brought a lot. With this preventive influence, banks do things already on their own. They know there is a single supervisor with skilled, trained resources. We also see banks wanting to come to this supervision.
Is there work that still needs to be done to feel comfortable with Nordea, a major bank, moving to Finland, a small country?
It is moving into banking union. That is crucial here. Nordea has said publicly that it is moving to banking union because it expects to be treated like comparable peer companies. It wanted to have comparable, predictable supervision.
There will a lot of change among the ECB-appointed members of the supervisory board around the turn of the year. Will things change as new team members come in?
In all organisations, the tone is set at the top. We'll see whether that will be a big change or if it reinforces what we do now.
Other jurisdictions are lightening the regulatory burden on banks. The ECB isn't a regulator, but do you think the ECB may go easier on banks with new senior leadership?
That's entirely speculation. I don't see that kind of change. The exact calibration of rules and regulations is up to others. I don’t know whether that will change our world. Supervisors do their work in a prudent way and I don't think that will make us any less diligent.
Would you be interested in leading the supervisory board?
I have no comment on this question since the process hasn’t started yet.