Towards a globally competitive, purpose-driven European banking sector

HIGHLIGHTS FROM THE EBF BOARD

Towards a globally competitive, purpose-driven European Banking sector

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Over the past decades, the European banking sector has undergone an unprecedented transformation. Most recently, it has shouldered the Covid-19 crisis by continuing to finance households and businesses throughout this challenging period. It is now time to look to Europe’s future. Our sector has a key role to play in delivering the region’s digital and sustainable transition. To advance this transformation, and ensure the European economy is underpinned by a stable, secure, tech-intensive and inclusive financial ecosystem, a regulatory reset is needed.

The European Banking Federation Board, which convened in Brussels and online on November 25^th, discussed the key priorities, opportunities and challenges for the banking sector. As the prudential reform enters into the EU co-legislative phase, it will be crucial to work together to find solutions that will allow banks to finance Europe’s twin transition. It’s also vital to ensure that regulation and supervision promote fair competition and innovation in the rapidly moving digital financial landscape, defined by new market actors, fragmented value chains and changing customer needs. As the world tackles the climate crisis, we should remember that each step towards the goal of Net Zero is important. We cannot underestimate the leading role that Europe can play on the global stage.

Executive Vice President of the European Commission and European Commissioner for Trade Valdis Dombrovskis delivered a speech to the EBF board members. “Europe needs healthy and dynamic banks playing a full part in the recovery. We need continuity and predictability as we navigate the continuously changing environment. Our priority is to support the sustainable and digital transition in which the banking sector has a key role to play”, he highlighted.

Rules fit for deeper integration and global competitiveness

The recently published European Commission’s banking package pinpoints the most relevant issues and topics for further discussion. Now, we must work towards permanent and balanced solutions that will help maintain banks’ current capital ratios without reducing their capacity to finance the economic recovery, including companies of all sizes, and to fund Europe’s and their own digital transformation and sustainable transition. Among other recommendations outlined by the EBF to deliver an effective and balanced prudential framework for banks and our clients – European households and businesses. The banking package is a unique opportunity to progress towards a truly integrated European banking market and to preserve an international level playing field in this industry.

In parallel to a well-functioning Banking Union, further integration and deepening of the EU’s capital markets is a key element of an inclusive and sustainable growth strategy. As users of and providers of services to capital markets, Europe’s banks will be pushing for the necessary reforms as part of the Capital Markets Union Action Plan to enable the growth of the products and services underpinning a greener, more competitive, innovative economy that benefits all European citizens and companies.

Fighting the climate battle on all fronts

To tackle the global climate challenge, an urgent shift of both private and public sector resources towards a low-carbon economy is essential. The COP26 conference has kept the goals within reach but also left important challenges as next steps, as outlined by EBF’s President Ana Botín. Financial institutions are not only going to be impacted by climate change; they are a key piece of the puzzle when it comes to finding a solution. However, we must remember that is not a black-and-white issue – the economy’s transition to Net Zero requires financing of companies and activities that may not meet strict environmental thresholds, like the EU taxonomy, but can still improve their performance and contribute to the EU objectives.

We also must look at the bigger picture. While Europe leads the sustainable transition on many fronts, our region’s decarbonization alone will not solve the global crisis. European leaders should turn their focus outwards and share their valuable expertise to guide the transition to Net Zero. Nearly a quarter of EU banks’ exposures are to entities outside of the EU. Global cooperation and harmonization are key to preventing market fragmentation and facilitating the flow of capital where most needed.

Adding value to customers in digital finance 

In an environment where tech companies offer financial services but do not follow the same rulebook as banks, a new approach to regulation needs to address the operation, cybersecurity and resilience of the financial ecosystem as a whole. Big Techs are critical service providers to banks but they also target valuable segments of the financial business model, with the help of privileged infrastructure control and data from adjacent sector activities. All the while, they do not need to comply with the same financial safeguards and regulations as banks.  As highlighted by Olivier Guersent, Director-General of DG Competition at the European Commission, during EBF’s Digital Thursdays event series, “Rules and regulations in the financial services sector should apply the principle of same activities, same risks, same rules”.

Given the decisive value of data in competing within digital finance, any discussion on open finance can only be part of the broader discussion on a European data economy. The banking sector is already sharing core customer data as a legislative obligation but, as this is not the case with other sectors, any proposal for further open finance must be preceded by a framework ensuring data sharing across sectors.

With the digital euro formally in the investigation phase, we need a solid understanding of the strategic objectives it would serve, and an inclusive process to explore how it could be best designed to benefit businesses and citizens. This is an unprecedented undertaking that touches upon fundamental issues of financial stability, monetary policy and operation of the financial system. The potential implications of this project should be carefully assessed by the European Central Bank together with the banking sector.

Reflecting on the road ahead, EBF President and Executive Chair at Banco Santander Ana Botín said: “A resilient banking sector that can continue to support our society needs to be competitive in the digital economy. This requires a regulatory framework that is able to evolve and be coherent in the digital age while allowing banks to continue to invest and meet the new and increasingly demanding needs of customers. We will continue to engage with authorities and regulators to work together on achieving a level playing field, and on how we can support our customers to help them transition to net zero.”

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