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Interview with Het Financieele Dagblad

Interview with Andrea Enria, Chair of the Supervisory Board of the European Central Bank, conducted by Marcel de Boer on 15 December

21 December 2021

[Introduction by the FD on, among other things, the European Deposit Insurance Scheme (‘EDIS’)]

Aren’t people slowly moving towards a consensus on EDIS in Europe?

I am certain that it will happen. The point is that even in the most optimistic scenario, where we reach an agreement in 2022, this will still be just a roadmap that will take three to five years to implement – or maybe even longer. It’s taking too long.

So you invented a ruse?

I didn’t make it up – I saw that there were banks bringing their business from London to the continent after Brexit. Most were making use of the European corporation, the societas Europaea, as a legal entity which could accommodate their European subsidiaries.

So subsidiaries, for which capital needs to be held, were transformed into branch offices, for which no capital is needed?

Yes, if you’re a single entity like that, you no longer have to fulfil the capital and liquidity requirements in the various countries where you do business. You can use your resources however you like. UBS set one up, but so did Goldman Sachs, JP Morgan and Morgan Stanley. They can now provide their services in the euro area from those branch offices. The paradox is that non-European banks are making better use of the internal market and banking union than European banks are.

Is it complicated?

Like everything here in Europe, it’s not that easy to do. There are costs involved, but once you’ve absorbed them, you have a model through which you can service the entire internal market for a long time. So that is really something that the banks need to consider. If you are active throughout Europe, and you need to hold pools of capital in every country where you operate, then that is simply less efficient. But let’s not forget that it’s not only good for banks, borrowers benefit from it too. Price differences across countries will narrow. The inefficient situation in which a small or medium-sized business in South Tyrol has to pay a higher rate of interest than an absolutely comparable one in North Tyrol, as it happened during the sovereign debt crisis, will then be a thing of the past.

In the meantime, you will keep doing your best to convince politicians.

We repeatedly try to put forward sound arguments. The problem with some politicians is that they see EDIS as a joint and several guarantee for more than €6,500 billion in deposits, a massive amount for which they would feel themselves responsible. But that is of course not the case; EDIS is covered by contributions from the banks themselves. If their contributions are adequately set to reflect the underlying risks, no taxpayers’ money at all will be needed to cover any problems.

I think that politicians are underestimating the positive effects of a more integrated banking sector. Look at the United States, where the level of private risk sharing is far higher. Banks that are active throughout the country can absorb a shock that occurs in one state with the profits they have generated in other states. Moreover, if you have a shock in one state, you can assume that banks from other states could step in to purchase assets and liabilities of failing banks, with no tangible impact on those banks’ depositors and borrowers. That happened when Puerto Rico banks ran into difficulties, for example. The assets and liabilities of the afflicted banks were bought by banks on the continent. Here, when the banks in Spain, Ireland and Greece got into trouble, their crisis was managed within the domestic markets. That is far less efficient. And then there is also the point that borrowers will benefit from lower prices as a result of competition across a fully integrated, single banking market.

But in the Netherlands politicians don’t want to embark on it for fear that Italian banks are full of risky Italian debt. They’re afraid that if that went wrong, the whole sector would be brought down.

For a start, I would say that it’s wrong to consider government debt as a high-risk investment category. Look at the spreads that the market is now imposing between the various bonds. Of course some banks hold too many of their own government’s bonds, but that also reflects a banking union that is incomplete. We need to encourage the banks to diversify more. It’s important for banks to own sovereign debt; we even ask them to do so, as a form of high-quality liquid assets. So more diversification must also be a component of the package for completing banking union.

Do you still want to set up a European bad bank so that banks can easily offload their soured loans?

I called for that at the start of the pandemic because I expected to see a sharp increase in non-performing loans. As that is no longer the case, there is no urgency to establish such an asset management company, as I call it. But I nonetheless think that such a European asset management company could be useful in the medium term: should bad loans start to mount up again at some point in the future, a rapid clean-up of the banks’ balance sheets would be really helpful. The sector could then be quickly restructured, in a fully coordinated way, without the distortions unavoidably introduced by national support measures. I am not presenting it as urgent at this moment. But if you’re asking me whether I’d like it in the toolkit, my answer is a resounding yes.

Do you also want the ECB to be entrusted with the supervision of anti-money laundering policies in Europe right away?

Oh no, we can’t do that. We are in favour of the European Commission’s intiative to establish a European authority, but the Treaty limits to prudential supervision the tasks that may be conferred to the ECB. As the ECB we cooperate with anti-money laundering authorities. There are 21 of these at present, each with its different practices; it would make cooperation much easier if they were to fuse into one.


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