Interview with viaSarfatti25

Interview with Andrea Enria, Chair of the Supervisory Board of the ECB, conducted by Jennifer Clark

10 December 2020

As Chair of the ECB’s Supervisory Board, you are Europe’s top banking regulator. Were you attracted to banking regulation as a student?

Banking regulation did not feature on universities’ curricula at the time. When the Banca d’Italia told me in 1988 that I had been accepted by a department called “programmes and authorisations,” it sounded terribly bureaucratic. My God! I was more eager to focus on monetary issues and macroeconomics. But regulation turned out to be very exciting. The first Basel agreement had been finalised that year, on capital requirements. So, I spent my first weeks in the office reading all the documents, getting up to speed. After that, I helped with the second European Banking Directive in 1989, that is the directive that created the Single Market. These two things came together to form a new set of banking laws. I was involved in the team that worked actively on the project.

You got your master’s degree in economics at Cambridge in 1989, the year the Berlin Wall fell, which was followed by the dissolution of Yugoslavia and then the creation of the Single Market in 1992. What did the European Union mean to you back then?

While in Cambridge I came to know students from China (it was also the year of the Tiananmen Square protests), Yugoslavia and Chile. Our discussions were pretty intense. I saw new nationalisms taking shape, and new hopes of walls getting torn down. It was then that I started developing the belief that the European Union could lead to a peaceful revolution, as a “gentle power,” to use Tommaso Padoa Schioppa’s words, and as an important driver for much-needed change across the whole continent. One of my most formative readings was the first volume of Altiero Spinelli’s autobiography, “How I Tried to Become Wise”. I was struck by how this communist, who was arrested in fascist Italy and sentenced to confinement for ten years, had found the courage to detach himself from his party and become an early advocate of a federal Europe.

So the European Union was a way of introducing reforms in Italy that politicians could not achieve?

I think it was a force for change in all countries, also an important instrument to bring about the change that was needed in Italy. When I left Bocconi in 1987, there was a lot of openness to new ideas. For the first time, the country was looking to understand how our neighbours in Europe were doing things. It was an important moment for change, modernising the country, and for economic debate.

Did Bocconi play a role in opening up Italy to ideas from abroad?

I think so. The Italian economy, at the time, was characterised by massive government ownership of firms, including banks. There was a lack of competition. There was a need to inject dynamism into the economy. And I think Bocconi was a place where these ideas were taking shape. For the whole country.

Who are your favourite economists? Who shaped your thinking?

My thesis was on Piero Sraffa. The classics are important for me. When I was at university and at the Banca d’Italia, I started admiring, a lot, Jean Tirole (Nobel prizewinner in 2014) and his work on industrial organisation and his pioneering analyses of banks’ capital requirements, together with Mathias Dewatripont. As for financial economists, I would say that Raghuram Rajan and Luigi Zingales, who was at Bocconi around my time. Also, Claudio Borio and Hyun-Song Shin at the Bank of International Settlements have developed the best analyses of the failings that led to the financial crisis, and the solutions that were needed to address them.

In 1999 you left the Banca d’Italia for the European Central Bank in Frankfurt am Main just shortly after it was set up. What was the atmosphere like?

Hyperactive, hyperexciting. When I joined, my family remained in Italy for three or four months. And I worked long days in the office. I would leave at 23:00 sometimes, and the offices would still be buzzing with activity. There was a lot of hard work and internal discussion. It was a really interesting place to work. And now there is the same thing with the Single Supervisory Mechanism, which started in 2014. We had the chance to start from a blank sheet, with a mix of cultures and viewpoints.

You always seem to be around for a start-up.

I went to London in 2004 to set up the Committee of European Banking Supervisors as Secretary General. Then, first Chairman of the European Banking Authority. I have been very lucky to be honest. I have always been involved in the first stages of the set-up, when the work is most path-breaking.

What is your outlook for Europe’s banking union? Without a European-wide deposit insurance scheme, it is still incomplete?

We are in a situation in which the institutional framework for a banking union is not complete. Unfortunately, there is a very strong divide between northern and southern countries, making an agreement very difficult to reach. I still hope that in the coming months, we will find the right political momentum to complete the banking union, or at least to commit to a clear roadmap.

You were appointed Chair of the ECB’s Supervisory Board Chair in 2018. What are your goals?

My position as Chair here will be judged by how effectively we can respond to the pandemic in terms of its impact on European banks. This is the first time we face a pan-European crisis after the banking union. We want to be fast, effective and integrated at the European level, unlike what happened during the last crisis, when we were slow, not always effective, and certainly divided. In terms of the impact on the banks, my greatest concern is that if the recovery of the economy is not going to be as sharp as we had hoped, we could see a large number of small businesses defaulting, which would also mean more non-performing loans at banks. So, the main concern here is asset quality, and we will need to focus quite a lot of our attention on that. In order to be more effective, we have recently reorganised our structure to increase collaboration across different areas and to improve collaboration between the national supervisors and the ECB.

For example?

We need to be very well coordinated in allocating resources to on-site inspections, which rely significantly on staff from national authorities. At the moment, on-site inspections are being reshaped due to the difficulties in travelling and working on-site. But allocating appropriate resources is essential to have a good grip on certain areas of risk. For example, with the pandemic, we think it would be important to look at commercial real estate exposures of banks. And we need to launch a campaign in that area, and it would be important to have strong teams, including experts from the national authorities.

Another example is cyber threats. To supervise these, we need to coordinate our work to deploy the expertise of the entire EU. There could be national supervisors that become centres of excellence in this area and provide services for the area as a whole. These are examples that could give you an idea of how we can work in a more integrated and collaborative way in the future.

What do you like about your job?

The dedication of my staff, and meeting young Europeans from all Member States - and many from Bocconi by the way. When I hear people talking about distant European bureaucrats in their ivory towers, I get very annoyed. Because I see that this young generation is so passionate and does so much to promote the European public interest.

What does Europe mean today?

What I can say is that the driving force is the same as the origins: overcoming the resurgence of nationalism in Europe and promoting peace and a sense of community -- a common destiny, in some sense. We need to rediscover that sense of the origins. After Economic and Monetary Union, at times we have seen a return to a very intergovernmental way of operating, with Member States compromising and negotiating. It would be a good thing if we could recover a little bit the community spirit at the roots of the European Union.