[27 04 2010]
The European Savings Banks Group (ESBG) supports the ongoing efforts to repair the financial regulatory framework and sees great value in the G-20 initiatives, the Basel proposals and in the related discussions going on at the EU level. It is without doubt that the financial system has to become safer and more resilient.
However, at the present stage ESBG has concerns and comments on the approach taken and the volume of the measures, as well as on some specific proposals.
The crisis has redefined many views on what makes a ‘desirable’ financial system, yet so far there is no coherent vision for a reformed banking sector and of the desired outcome regarding its role in the economy. Going forward, ESBG would like to remark that a coherent vision is a driver for coherent reform. ESBG also needs to point out that the present proposals reflect a one-size-fits-all approach with an underlying bias against the classical banking model of intermediation. In an international context the reforms may become a disadvantage for the EU, where this business model is prominent. It is a similar paradox that the Basel and Commission proposals appear not to take into account that the retail banking sector proved robust during the crisis: If left unchanged, the reforms will construct disproportionate hurdles to retail banking activities, in particular relating to long-term commitments to the real economy.
It is generally recognised that scope and volume of the new measures are unprecedented. ESBG would like to emphasise that this gives rise to new issues. At present there is no clarity whether the individual measures put forward are compatible with each other. Also, the cumulative impact of those measures is uncertain.
Finally, ESBG is critical on some aspects of the proposals on the table (more detailed comments are available in the ESBG contribution to the Basel and EC consultations):
- The proposed liquidity standards build on a sound motivation, but they do not take into account different banking models. It is essential to revise certain aspects, in particular concerning the calibration.
- The proposed definition of banks’ capital may improve revealed shortcomings, but goes beyond what is necessary in order to remedy the weaknesses exposed by the crisis. Furthermore, it is vital to maintain compatibility with a pluralistic banking sector.
- The promoted leverage ratio is overly simplistic and potentially harmful to banks and the wider economy alike. ESBG strongly advises against introducing such a tool in the way currently envisaged.
- Countercyclical measures, as such, are necessary. However, the current discussion considers too many tools to be used cumulatively; furthermore appropriate calibration is vital. Also, the outcome of the related discussions in the accounting area cannot be anticipated.
Overall, adequate calibration will be of utmost importance: It is crucial to a) draw on the conducted Quantitative Impact Studies (QIS), which will also capture the cumulative effects of the various proposals and b) assess the macro-economic impact of the new rules, also in terms of availability of credit to the real economy.
Accordingly ESBG stresses the need to:
- Re-consult on a revised and further developed set of proposals.
- Conduct (at least) one more round of QIS based on a revised and finalised proposal.
- Provide for appropriate grandfathering and transition arrangements.
- Implement the proposals only once economic recovery is well on its way.
Click here for the full text of the position paper
Notes to Editors:
Press Contacts:
Dirk Smet, Tel: +32 211 11 90 dirk.smet@savings-banks.com
About ESBG:
The European Savings Banks Group (ESBG) is an international banking association which represents one of the largest European retail banking networks, comprising about one third of the retail banking market in Europe, with total assets of almost €6,000 billion (January 2009). It represents the interests of its members vis-à-vis the EU Institutions and generates, facilitates and manages high quality cross-border banking projects.
ESBG members are typically savings and retail banks or associations thereof. They are often organised in decentralised networks and offer their services throughout their region. ESBG member banks have been reinvesting responsibly in their region for many decades and they are a distinct benchmark for corporate social responsibility activities throughout Europe and the world.