EN Official Journal of the European Union C 11/34

Opinion of the European Economic and Social Committee on the ‘Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards its interaction with Council Regulation (EU) No …/… conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions’

COM(2012) 512 final — 2012/0244 (COD)

and the ‘Communication from the Commission to the European Parliament and the Council — A Roadmap towards a Banking Union’

COM(2012) 510 final

2013/C 11/08

Rapporteur-General: Mr Trias PINTÓ

On 12 September 2012 the Commission decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, on the

Communication from the Commission to the European Parliament and the Council — A Roadmap towards a Banking Union

COM(2012) 510 final

On 27 September and 22 October 2012 respectively, the Council and the European Parliament decided to consult the European Economic and Social Committee, under Article 114 of the Treaty on the Functioning of the European Union, on the

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards its interaction with Council Regulation (EU) No …/… conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions

COM(2012) 512 final — 2012/0244 (COD).

On 17 September 2012 the Committee Bureau instructed the Section for Economic and Monetary Union and Economic and Social Cohesion to prepare the Committee's work on the subject.

Given the urgent nature of the work, the European Economic and Social Committee appointed Mr TRIAS PINTÓ as rapporteur-general at its 484th plenary session, held on 14 and 15 November 2012 (meeting of 15 November), and adopted the following opinion by 194 votes to 15 with 22 abstentions.

1. Conclusions and recommendations

1.1 The EESC agrees with the Commission's view that, while essential, the broad regulatory programme of financial reforms undertaken prior to the present "Banking Union Package" will not be sufficient to tackle the crisis and stabilise Economic and Monetary Union (EMU) (1), restore confidence in the euro and in the future of the EU, to improve governance, or to curtail the increasing fragmentation of EU banking markets. Consequently, the EESC considers the package of measures set out in the roadmap COM(2012) 510 and in the two legislative acts COM(2012) 511 and COM(2012) 512, the second of which is also covered by the present opinion, to be appropriate.

1.2 The EESC pays tribute to the painstaking work carried out by the Commission and supports its call for the measures to be adopted before the end of 2012, and that they should be drawn up with careful attention to the effects on banking and national economies. It is crucial that the Member State governments have the breadth of vision to create more and better Europe, handing over some powers and ensuring that they can be applied by means of high-quality, supervision and more integration, with a view to achieving effective European governance that is socially useful and economically efficient.

1.3 Both the urgency and the insufficiency of these measures stem from the fact that the costs far outstrip the EUR 4 500 billion of taxpayers' money that has so far gone to rescuing banks in the EU. The financial crisis has triggered the worst world recession since the Great Depression, principally in the euro zone, where the absolute need to restore confidence in the euro and the governance of its institutions is consequently all the more pressing. New and stricter rules will offer security to people and markets, although the questioning of the current rules, the vagueness of the new ones and the delay in applying them may give rise to increased uncertainty. For this reason, the time for adjustment given to institutions upholding the euro must also be short and clearly defined.

1.4 More specifically, the EESC urges rapid agreement on the entry into force of the Single Supervisory Mechanism (SSM). This means starting with unification as early as 2013 without at this point setting uncertain goals, as the basic initial objective is to save the euro while minimising the costs for tax payers of possible restructuring measures or closures, by ensuring sufficient funds are in place in advance and that the costs are borne by shareholders and creditors.

1.5 The EESC warmly welcomes the fact that the ECB will from the beginning have a supervisory board to avoid potential conflicts of interest with its monetary functions.

1.6 The EESC supports the ECB taking on responsibility for supervising all banks in the banking union, however small, especially the consolidated accounts of cross-border transactions, and for applying the single rulebook to them. It is also glad to see the ECB being assigned the tasks, powers and resources that are essential for it to ensure the detection of risks threatening banks' viability and to require them to take the necessary remedial action, with national supervisors being actively involved in the SSM. Similarly, it is right that national supervisors should remain in charge of consumer protection, although the Commission's proposal does not address the issue of how to deal with possible conflicts of interest between the European level of prudential supervision and the powers conferred upon the national authorities.

1.7 Regarding macroprudential policies, the EESC advocates a stronger role for the European Systemic Risk Board (ESRB) and the ECB as part of a more integrated financial system, and urges the Commission to provide more practical details on how the national authorities and the ECB are to interact.

1.8 The EESC welcomes the idea of promoting the involvement of non-euro area countries using the "opt-in" clause, with the same rights as euro area countries, via more straightforward and attractive procedures, without infringing the TFEU.

1.9 The EESC considers close connections between the European Banking Authority (EBA) and the ECB to be crucial, realising that some overlap of functions will occur during the initial phase. Where decision-making is concerned, the review of voting modalities by amending the EBA Regulation and the greater decision-making powers of the independent panel needs further analysis and consideration to balance the internal market banking interests of Member States not belonging to the SSM (in line with the European Council conclusions on completing EMU adopted on 18 October 2012), while avoiding the risk of euro area integration being paralysed by minority blocking votes. It is important to avoid a two-tier market in financial services, which is why the EESC has raised the issue.

1.10 Similarly, the ECB, the ESRB and the new European financial supervisory authorities, including the independent panel, should involve civil society organisations in their work, especially consumer bodies and trade unions (2), retaining their complete independence, transparency and resistance to political pressure.

1.11 The rate at which the supervision of credit institutions is shifted and the relevant changes made at the European Banking Authority (EBA) – whose role must focus on ensuring consistent, harmonised regulatory rules and technical standards, in order to extend them across the EU – are factors just as crucial as stricter prudential requirements for banks (3), measures to strengthen the common system for deposit protection (4), and integrated crisis management with bank rescue and resolution tools (5) in order to strengthen the sector in Europe and avoid any future spill-over effects, especially those arising from the greater risk taken on by investment bank clients. The EESC strongly urges the Commission to set specific functional and time objectives for this single rulebook.

1.12 The EESC urges the Commission to put forward a calendar and details for the SSR (6), as well as for any other relevant stages that need to be accomplished, such as the management of possible crisis situations in shared supervision plans. The banking union would thus gain credibility and serve as a common foundation for the entire single market. This would prevent relatively small bank failures causing cross-border systemic damage or loss of confidence that could trigger bank runs across borders and weaken national banking systems. We are convinced that the single resolution mechanism could subsequently take on additional coordination tasks in the management of crisis situations. Supervision and resolution must however go hand-in-hand in order to prevent possible decisions to wind up a bank at European level, and the cost of paying deposits, becoming the responsibility of the Member State.

1.13 The EESC urges the other European institutions to comply with the basic principles that must underpin all secondary regulation and other acquis, relying on the strength of law and not of power. Restoring compliance is increasingly urgent in the euro zone in order to provide assistance to the banking union from the fiscal union by means of a common mechanism for issuing debt and another mechanism for fiscal transfers in order to counter cycles generating asymmetric shocks such as those experienced most strongly by the countries of the euro zone in the last few years. The SSM could be financed by supervision charges levied on banks, reflecting the risk profile of the body to be supervised. The EESC considers that the Commission should draw up a green or white paper on how to finance the banking union in a harmonised manner, so it will be in a position to decide on the taxes or levies on financial and banking transactions, which are necessary but currently generate fragmentation.

1.14 A banking union would represent a step towards the euro zone and the EU as a whole embarking on a virtuous cycle overcoming its design flaws and enabling the single market to regain competitiveness in order to meet the objectives of the Europe 2020 strategy. This would fend off the wave of financial innovation emerging from shadow banking stemming from Basel III, as pointed out in the most recent IMF reports. The EESC calls on the Commission to act more quickly to bring forward the new models for investment and commercial banking, since in many countries shadow banking tends to outstrip conventional, regulated banking.

1.15 The EESC recommends that the Commission and the European co-legislators convert this project into a tool for financial and digital inclusion. SSM executives must act responsibly and be subject to democratic control. They must appear regularly, or whenever asked, before the European Parliament to answer for their management. This would boost the political visibility of these issues and would help stimulate public support for the European institutions.

1.16 Lastly, the scope of the banking union should not be limited to the euro zone and the EU as a whole, but should project its cooperation and competitiveness objectives especially in external areas where the euro exerts influence, and towards the rest of the world.

2. Background and introduction

2.1 The banking authority set up by Regulation No EU No 1093/2010, based on the recommendations set out in the Larosière report, began operating on 1 January 2011 with the aim of reforming the supervisory structure and creating an integrated European system comprising three authorities (for banks, the stock markets, and insurance and pension funds), together with the ESRB.

2.2 In parallel, consumer protection and confidence in financial services have been strengthened since July 2010 with deposit guarantee schemes for banks (MEMO/10/318), investor compensation schemes (MEMO/10/319) and insurance guarantee schemes (MEMO/10/320). Further, on 6 June 2012 the Commission announced new crisis management measures aimed at avoiding bank rescue operations in the future. The Commission had proposed this supervisory framework in its Communication Driving European Recovery, published on 4 March 2009, subsequently fleshing out the details of the new architecture in its Communication on European Financial Supervision, of 27 May 2009. Both were confirmed by the European Council of 19 June 2009, according to which the system should be geared to improving the quality and consistency of national supervision, strengthening supervision of cross-border groups, and establishing a single rulebook to be applied to all financial institutions in the internal market. It also stressed that the new European supervisory authorities should have authority over the rating agencies (with Regulations (EC) No 1060/2009 and (EU) 513/2011 being amended accordingly).

2.3 This arduous regulatory process has culminated in the communication A Roadmap towards a Banking Union, in which the Commission proposes laying down the foundations of a common, high level of prudential regulation for all banks and financial bodies for the EU as a whole, bringing together tools for supervision, resolution and deposit guarantees under the umbrella of a single rulebook.

2.4 To this end, it calls for five key actions to be agreed before the end of 2012. Three of these are legislative proposals on which the EESC has already issued or is preparing opinions: ensuring that capital requirements for banks are applied (CRD IV) (7), the Directive on deposit guarantee schemes, and the Directive on bank recovery and resolution. A further two, together with the roadmap, are covered by the present opinion: a new Regulation conferring prudential supervision of banks on the ECB, and an amendment to Regulation (EU) No 1093/2010 establishing the European Banking Authority (EBA). This is needed for better coordination between the Authority and the future single supervisor, and in order to balance decision-making between SSM member and non-member countries so as to safeguard the integrity of the single market. Among these five actions, the Commission advocates a single resolution mechanism (SRM) and coordination of resolution tools.

2.5 This roadmap comes just as the financial integration model based on the euro has run out of steam as a result of the crisis that began in 2007. The achievements in the rapid integration of shares and bonds markets in Europe have been slow to come to the field of banking, more in the wholesale (interbank, securities, etc.) than in the retail markets of bank loans and deposits. The crisis has however seen retailer markets affected by recent trends towards fragmentation and the ensuing renationalisation of wholesaler markets, spurred by the continuing national character of supervision, resolution structures and deposit guarantees (8). Renationalisation of the debt markets has been particularly rapid.

2.6 Adjustments and austerity plans in the wake of the crisis, leading to falling GDP and employment, have been far greater in the euro zone. On 23 October 2011 the President of the Commission told European leaders that the EU had lost billions of euros worth of economic growth between 2007 and 2010 because of the crisis (9).

2.7 According to the IMF, at the end of the 2010 nearly one-third of the public cost of bank rescues since the beginning of the crisis (1 800 billion out of 5 200 billion dollars) had been recovered in the United States and seven European countries. The rest could be recovered almost in full in coming years through taxes or other initiatives, unless prevented by the impact of a fresh recession triggered by a further debt-related bank crisis.

2.8 The roadmap sets firm dates for euro zone supervision to come into force (10), but does not do so in full for the SSM or the SRM, although the Commission considers the former to be particularly important for stabilising the situation and as a pre-requisite for direct capitalisation of banks by the ESM.

2.9 Lastly, in order to complete the banking union process, it is essential to speed up and strengthen the initiatives the Commission currently has in hand: regulating the shadow banking system (IP/12/253); boosting the credibility of credit ratings (IP/11/1355); tightening up the rules on hedge funds (IP/09/669); short selling (IP/10/1126) and derivatives (IP/10/1125); halting irresponsible banking remuneration practices (IP/09/1120); and reforming the audit (IP/11/1480) and accounting (IP/11/1238) sectors. It is also crucial that the EESC's recommendations on abolishing tax havens (11) be taken on board.

3. General comments

3.1 The rising costs of the crisis in the EU (12) have exacerbated imbalances and asymmetries between the various parties, leading to a loss of effectiveness on the part of policies that are enshrined in the treaties. This includes such important ones as monetary, trade, cohesion and sustainability policies, combined with the ensuing fragmentation of the financial and banking markets and the widening gap with the objectives of the Europe 2020 strategy for smart, sustainable and inclusive growth and better economic governance (13). While a few countries have reduced their interest burden, the countries facing the worst financial and debt crises have seen their public expenditure on interest rise by a far larger amount and have had to cut public sector pay, pensions, education and health spending and investment in technical and social infrastructure (14).

3.2 The necessary enhancement of democratic procedures must be compatible with the objective of a banking union to facilitate intermediation between savings and investment, the primordial function of banking, that brings with it control over technical efficiency and efficiency in resource allocation, contributing to the principles of EU law and touching upon the freedoms and interests of the general public as a whole.

3.3 Although numerous measures were taken from the onset of the crisis to prevent the loss of confidence in the financial institutions spreading to the public debt of the euro zone countries, this vicious circle has still not been broken. For financial institutions to resume their function of intermediation between savings and investment, economic theory advises the deployment of policies for positive, rather than negative, redistribution such as common mechanism for issuing debt or for fiscal transfers in order to counter cycles generating asymmetric shocks (15).

3.4 According to the latest reports from the IMF and the World Bank, the tasks of promoting transparency and reducing risks affecting the world financial system are highly compatible with the efforts for financial and digital inclusion and to protect consumer rights that the EU has undertaken and has further strengthened with its Europe 2020 strategy.

3.5 Ultimately, a tightening up of democratic control must help to promote not only compliance with the treaties and with principles, but also to bring the banking union into line with the Europe 2020 strategy, which is vital for the future of our political project.

4. Specific comments

4.1 The EESC sees the roadmap proposed by the Commission to be a proper contribution to European governance, and agrees on the need for and the urgency of the two new legislative acts, as well as the forthcoming actions that have been announced, all of which are crucial to reversing the lack of confidence in the euro and in the future of the EU.

4.2 The primary aim of the SSM must be to bring about centralised supervision of banks that is more efficient than that carried out by the current network of national authorities; it should also ensure that it operates in line with the SRM, avoiding the political aspects arising from the decision to wind up a bank.

4.3 The many reasons which make the ECB the most appropriate body to centralise supervision include its network, its independence and the fact that it is covered by the TFEU, meaning reform of the Treaty is not needed to achieve high-quality supervision.

4.4 The EESC supports national supervisors retaining the powers to combat money laundering and terrorism, in keeping with Directive No 2005/60/EC (16), and to supervise third country credit institutions. However, the Committee calls for the exclusion from the single resolution mechanism of countries that – for various reasons – fail to implement the directive scrupulously. Similarly, to facilitate the centralised supervision function, changes to the statutes of the relevant national central banks should be speeded up, ensuring that information is passed on unfiltered.

4.5 Regarding the newly-created bodies, voting arrangements must be adopted that exclude members who could be subject to a conflict of interests from voting. The independence and responsibility of people in senior positions must be underpinned by sanctions for those who fail to meet their obligations, given the harm that such failure causes to banks and to the proper functioning of the financial system, as well as to the economy, businesses and individuals.

4.6 The financial industry is reacting to the new regulatory framework by configuring new products that circumvent the new rules. In its most recent reports, the IMF warns of a new wave of financial innovation, in some cases similar to those that triggered the current crisis: the costs of centralised supervision must consequently reflect the risk profile of the various operators, so as not to place a burden on bodies that refrain from such practices.

4.7 The EESC therefore warns against the clear danger of an expansion of shadow banking in the EU, which would again run counter to both the functions of the financial sector and the principles, values and rights of EU citizens.

4.8 If it is to maximise its opportunities, the new European banking union should cooperate more closely with other existing or future unions in order to make the most of its financial institutions, especially with the most globalised ones, and particularly those that are closest and are already connected with or dependent on the euro (the euro is already directly or indirectly the currency of more than 50 countries).

Brussels, 15 November 2012. The President of the European Economic and Social Committee Staffan NILSSON

(1) Eight regulations, directives or recommendations already adopted by the EU, fourteen more at the co-decision stage, and another proposed prior to the present Banking Union Package: http://ec.europa.eu/internal_market/finances/policy/map_reform_en.htm.

(2) See EESC opinion on How to involve civil society in financial regulation – OJ C 143, 22.5.2012, p. 3.

(3) http://ec.europa.eu/internal_market/bank/regcapital/new_proposals_en.htm.

(4) http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:068:0003:0007:EN:PDF.

(5) http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm.

(6) http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131201.pdf.

(7) http://ec.europa.eu/internal_market/bank/regcapital/new_proposals_en.htm.

(8) See European Central Bank (ECB), Financial Integration in Europe, April 2012, and European Commission (EC), European Financial Stability and Integration Report 2011, April 2012, together with EFSIR 2010, May 2011.

(9) http://ec.europa.eu/europe2020/pdf/barroso_european_council_23_October_2011_en.pdf.

(10) 1 July 2013 for the most significant European systemically important banks, and 1 January 2014 for all others, meaning that on 1 January 2014 all banks in the euro zone will be subject to centralised supervision.

(11) See EESC opinion on Tax and financial havens: a threat to the EU's internal market (OJ C 229, 31.7.2012, p. 7).

(12) Douglas Elliott, Suzanne Salloy, André Oliveira Santos, Assessing the Cost of Financial Regulation, IMF.

(13) http://ec.europa.eu/europe2020/index_en.htm.

(14) IMF, Safer Global Financial System Still Under Construction, Global Financial Stability Report, 2012.

(15) Enderlein et al., Completing the Euro, Report of the Tommaso Padoa-Schioppa Group, June 2012.

(16) See also EESC opinions on money laundering: OJ C 75, 15.3.2000, p. 22, and OJ C 267, 27.10.2005, p. 30.