Speech by Andrea Enria, Chair of the Supervisory Board of the ECB, at the SRB and ECB Joint Conference "The test of time: banking union a decade on"
Brussels, 23 June 2022
Welcome to our first joint conference of the Single Resolution Board and the European Central Bank. This event marks the tenth anniversary of the banking union, as proposed at the June 2012 European Council. However, the Single Supervisory Mechanism was not legally in force until two and a half years later. And it was almost four years before the Single Resolution Board was legally operational.
The banking union, and its institutions under the first and second pillars, have therefore been operational for much less than a decade. Yet they have already left their mark. Just take for example the considerable reduction in non-performing loan ratios of significant euro area banks: from eight percent in 2014, to around two percent in 2021. And look at the supervisory response to the biggest yearly drop in economic activity since the Second World War – provoked by the pandemic – which allowed banks to keep credit lines open to companies and households.
Empirical evidence strongly suggests that measures such as granting capital headroom to banks and recommending they do not distribute dividends were effective in supporting lending and economic output during the pandemic. In tandem with monetary and fiscal policy support, these measures allowed European banks to emerge from the pandemic in strong shape. They were also ready to withstand a new shock that – unfortunately – did not take too long to materialise. For the first time, a symmetric shock was met with comprehensive policy actions at EU level.
And during its first years the SRB established itself as a pan-European resolution authority. This was reflected not only in terms of banks’ preparedness, through resolution planning and minimum requirement for own funds and eligible liabilities (MREL), but also swift interventions in the few cases of banks declared failing or likely to fail.
The unified European response to the challenges of recent years would have been unthinkable without the banking union.
In this context, cooperation between the SSM and the SRB was integral to our efforts throughout those years. Take our joint handling of recent crisis cases, such as Sberbank. Given the limited time available to respond to fast-moving crisis situations, effective cooperation is vital for the successful, orderly wind-down of a bank. And this concerns not only the quick exchange of information, but also consultation and cooperation between the two authorities, as provided for in the legislation.
However, this is only the outcome of a coordination process that starts much earlier, as set out in our interinstitutional Memorandum of Understanding. To make sure both institutions are on the same page when push comes to shove, the ECB is consulted on the resolution plans that the SRB prepares, while the SRB provides feedback on the recovery plans of significant institutions. And our information exchange is not limited to crisis management. We also share insights on key system-wide vulnerabilities, such as in the Extended Contact Group monitoring developments following the Russian invasion of Ukraine, as well as exchanging bank-specific information on matters such as MREL.
So, we have come a long way. But we have certainly not yet reached our final destination. The banking union remains incomplete in several respects. For large banks, we have a uniform and effective crisis management framework in place, but the same cannot be said for small and medium-sized banks. Prudential regulatory barriers to a truly single European banking market remain. And the third pillar of the banking union, a common deposit insurance scheme, is still missing.
All these issues were discussed at the Eurogroup meeting last week, but an agreement on a roadmap to complete the banking union proved elusive once again. These are complex political negotiations that go to the very heart of the kind of Union we want as European citizens. And here I am not talking only about the banking union, but also about the European Union itself. It is only natural that there are different viewpoints, and that negotiations are proving complex. But, as I have reiterated time and again, I am today more convinced than ever that we cannot stand still while complex political negotiations play out.
That is why my colleagues and I have already put forward several proposals on how to maximise the full potential of the legal and regulatory framework currently in place. This concerns, in particular, the prudential regulatory obstacles still impeding the cross-border integration of the EU banking sector.
More recently, I have argued for some incremental reforms of our crisis management framework, in particular for the resolution of medium-sized banks. We regularly discuss these issues with Elke König and her colleagues at the SRB and I believe that we share similar views on a number of issues, owing to our common experience with the crises we encountered in the first years of the banking union.
In my opinion, these reforms should include: enlarging the pool of banks which qualify for resolution; expanding the role of deposit guarantee schemes beyond their “paybox” function; boosting the ability to fund a smooth exit from the market on a least cost basis; ensuring a more widespread use of purchase and assumption transactions, which over the years have proved to be the cornerstone of the successful crisis management and resolution framework in the United States; and harmonising the framework for administrative liquidation.
Even though, much like all of you, I was disappointed by the lack of a broader agreement, I take comfort from the fact that the finance ministers last week agreed to improve the resolution framework broadly along the lines I just mentioned, inviting the Commission to bring forward a legislative proposal. Your next speaker today will be Commissioner Mairead McGuinness, who will kick off the Conference with her keynote speech. I personally look forward to cooperating with her, Elke König and John Berrigan, and I would be happy to offer all the technical advice my staff can provide for a comprehensive review of the crisis management framework in order to make it more effective.
At ECB Banking Supervision we are very much aware that an effective framework for market exit that does not imperil financial stability is key for an efficient, globally competitive banking sector. I am reassured by the fact that at least this element of the regulatory reform programme has found its way to the ordinary legislative procedure, with initiative from the Commission and agreement between the co-legislators, because I believe that in this way the entrenched political obstacles will be discussed and resolved within the appropriate decision-making process.
I am sure that the next two days will bring many analyses and proposals on how to improve our current regulatory framework both for the SSM and the SRB. And, again, I am sure that the discussion will be extremely insightful and fruitful, even if the holy grail – a single deposit guarantee scheme – will not be our focus. I am very much looking forward to our debate.
After Commissioner McGuinness’ keynote speech, today’s first panel, moderated by Laura Noonan, will discuss how to move crisis management forward, and I am eager to hear the insights that our panellists John Berrigan, Elke König, Peter Simon and Irene Tinagli will offer. The next panel will have its eyes firmly on the future. Jennifer Baker will moderate a discussion with Patricia Boydens, David Martin Lopez and Marilin Pikaro on what the banking sector might look like in 2040. Following tomorrow’s keynote speech by Johan Thijs, we will focus on a topic that has become even more salient since Russia’s invasion of Ukraine: operational resilience. The ECB and banks alike have already been on high alert for cyber risk, and Russia’s war in Ukraine and the elevated risk of cyberattacks has only heightened our vigilance and that of banks. While the motivation behind cyberattacks has so far mostly been of a financial nature, this may now shift to targeting critical infrastructures with the aim of causing as much chaos as possible. Elena Carletti, Elizabeth McCaul, Christian Ossig and Fernando Restoy will explore ways of safeguarding banks’ operational resilience in these turbulent times in a discussion moderated by Raymond Frenken. Elke König will then close the conference with her final remarks.
Before I finish, allow me to thank Elke for our very fruitful cooperation over the years – both when I was head of the European Banking Authority and now as Chair of the Supervisory Board of the ECB. I have already praised the level of cooperation and information sharing between our two institutions, but I would also like to thank Elke for our personal interaction and cooperation during this period. She has been an outstanding first Chair of the SRB. I know from personal experience that it is not easy to set up a new institution, and even less so if you face various crises from the outset. This is the first joint SRB-ECB conference, but also the last one we will host together, as Elke will step down at the end of this year. But we still have a full six months to work closely together, hopefully not on tackling concrete crises. The close collaboration between the SRB and the ECB is a strength of our institutional framework that has been built by the leadership of these two institutions – Elke, Daniéle Nouy and myself – and is something we all need to preserve and develop in the years to come.
Thank you very much for your attention.
See “Conclusions of the European Council” (28/29 June 2012). See also Van Rompuy, H. (2012), “Towards a genuine economic and monetary union”, Report by President of the European Council Herman Van Rompuy, 26 June.
Oprica, S. and Schwarz, C. (2021), “Supervisory Forward Guidance: The Effectiveness of the 2020 Supervisory Capital Relief on the Bank Credit Supply Channel”, SSRN, August 9.
Dautovic, E. et al, (2021) “Evaluating the benefits of euro area dividend distribution recommendations on lending and provisioning”, ECB Macroprudential Bulletin, 28 June.
See, in particular, Enria, A. (2021), “How can we make the most of an incomplete banking union?”, speech at the Eurofi Financial Forum, Ljubljana, 9 September 2021. See also Enria, A. and Fernandez-Bollo, E. (2020), “Fostering the cross-border integration of banking groups in the banking union”, The Supervision Blog, 9 October.
Enria, A. (2022), “Of temples and trees: on the road to completing the European banking union”, speech at the Institut Montaigne, Paris, 17 May.