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European Commission - Speech - [Check Against Delivery]

Speech of Vice-President Dombrovskis at the Finanzmarktklausur 2017 in Berlin

Berlin, 26 January 2017

Sehr geehrter Herr Vorsitzender Bahlsen,

Sehr geehrte Damen und Herren,

Ich freue mich, dass ich heute hier in Berlin zu Ihnen sprechen kann.

Investitionen und Innovation sind der Schlüssel für eine starke europäische Wirtschaft. Um diese zu finanzieren, braucht Europa einen starken und sicheren Bankensektor im Herzen der europäischen Wirtschaft. Und eine gut funktionierende europäische Kapitalmarktunion. Als Europäische Kommission arbeiten wir daran, den richtigen Rahmen dafür zu setzen. Lassen Sie mich genaueres auf Englisch darstellen.

This focus on a strong financial sector financing the real economy may seem obvious. You might think it normal to focus on a positive, constructive agenda which delivers results. I would agree with you. It should be. But in the era of post-truth politics - of positions divorced from fact or rational argument – we face populists which build their campaign on myths, rather than facts. They hit out at the European Union and international governance; preach protectionism; ignore the reality of integrated global supply chains; and undermine rule based systems with scant regard for the disorder their absence would create.

Irresponsible politics makes for uncertain times. This makes it harder for businesses to plan ahead and invest. It disrupts commerce. It channels energies into contingency planning rather that client service. It weighs negatively on innovation, on growth, on job creation. However, not all is doom and gloom.

The European economy is holding up well. All Member States are expected to grow in 2017. EU GDP is higher than before the crisis and set to continue growing. Europe's banks are stronger and better capitalised. And we are gradually reducing public debt and deficit levels. The euro area public deficit is expected to go down from 1.8% of GDP in 2016 to 1.5% this year.

But against the backdrop of increased uncertainty, the European Commission's focus must be to provide as much clarity and predictability as possible. To stick to evidence based policy making; to legislate only when necessary; and to continue cooperating internationally for global financial governance that makes our system safer. Responsible fiscal policies, structural reforms to increase competitiveness and investment - remain the central tenets of our economic plan. We want inclusive growth and an economic recovery that benefits everyone.

Let me set out what this broader agenda means for financial services, starting with banking.

As you know, we have recently come forward with a substantial package to reduce risk in the banking sector and to support the financing of the wider economy. We believe it necessary, because while recent reforms have made our banks more resilient and better capitalised, and we have made good progress towards building a banking union, there remain areas where our regulatory framework needs to be strengthened and adjusted. Our commitment to a strong banking sector – one lending to companies and households - demands it.

We want an international and European approach. Global banks need global standards. These underpin a level playing field and stability in world markets: the bedrock of trade and competition. This truism is why Europe and the United States worked together in the G20 to further an international financial governance agenda in response to the financial crisis. It propels us to continue engaging constructively in the Basel Committee to upgrade global standards in a way that works for everyone. It is why we have already proposed to introduce into EU legislation standards already agreed in the Basel Committee and the Financial Stability Board. And I am convinced that we have good arguments to continue international cooperation in the future, to find agreements with tangible mutual benefits for all parties concerned.

To avoid excessive leverage building up in the financial system, the EU Banking Reform Package would introduce a binding leverage ratio of 3%. It would act as a backstop to banks' internal model based capital requirements. We have proposed to introduce a Net Stable Funding Ratio to help ensure banks finance their long-term loans with stable sources of funding, and can handle periods of market stress better. We have made capital requirements more risk sensitive in a number of areas, such as market risk, counterparty credit risk and exposures to central counterparties.

 Managing risks linked to global and systemically important banks is a particular challenge. So we have proposed they have a minimum amount of Total Loss-Absorbing Capacity. This would enable banks to absorb losses better and be resolved if necessary. The TLAC rule would be incorporated into Europe's existing Minimum Requirement for own funds and Eligible Liabilities.

But at the same time as introducing these risk reduction measures, as we complete our regulatory framework we want to make it more proportionate. So our proposals build on the responses you provided to our Call for Evidence – our public consultation on all financial services legislation. Our aim is for requirements to be more attuned to different business models and risk profiles – so that our banking system remains dynamic and diverse: servicing big international companies as well as local communities and businesses.

For smaller banks, we are firmly committed to reducing the reporting burden and reducing administrative costs. Our proposals would reduce disclosure requirements and simplify the calculation of capital requirements for trading-related positions. They would also lighten some remuneration rules for smaller banks. And to give a helping hand to banks lending to small and medium size enterprises and infrastructure projects. Investment in these areas is essential to strengthen Europe's competitiveness and to stimulate job creation. With this in mind, we want to maintain the current SME supporting factor and extend it to all loans to SMEs.   And we will similarly support investment in low risk infrastructure projects with predictable cash flows.

These proposals are part of a balanced approach where risk sharing and risk reduction go hand in hand as we work to complete the Banking Union. We have made a balanced and gradual proposal to build a European Deposit Insurance Scheme. We need to make progress on this, to strengthen Europe's ability to deal with large economic shocks. Another issue of relevance in the context of completing Banking Union is the regulatory treatment of sovereign exposures. As agreed by the Ecofin Council, we will await the outcomes of discussions in the Basel Committee before considering what steps to take in a European context.

But completing the banking union presupposes that we apply the parts we have already agreed on. This includes our rules on bank resolution which ensure taxpayers are not the first in line to pay for banks failures. These rules are the result of careful compromise. They allow the precautionary recapitalisation of solvent banks using public funds according to strict conditions. To strengthen mutual confidence within the Banking Union we need to stick to all elements of these agreed rules.

But to significantly improve the investment environment in Europe, bank lending needs to be complemented by other sources of financing. That is why building a single market for capital – a Capital Markets Union – remains a top priority for the European Commission. The prospect of Europe's largest financial centre leaving the single market just makes the project more urgent.

The Capital Markets Union's first wave of measures is well underway. Let me mention just two.

We recently agreed to overhaul the prospectus regime to make it simpler for companies to issue equity and debt on public markets. It will make it quicker, easier and cheaper to produce a prospectus. For amounts of less than 8 million euros raised, it will do away with the prospectus requirement completely. While enabling SMEs to produce them should they wish to raise small amounts of capital on an SME growth markets. Together these measures will return prospectuses to their original purpose: a source of useful, targeted information for investors.

Discussions are on-going to agree our proposal to restart securitisation markets. There is broad international consensus that straightforward securitisations have a positive role to play in a modern economy. They open up investment into households and businesses from a much wider market. They help companies diversify their funding sources. And enable banks to manage the risks they take to provide services their customers depend on: like loans to buy a house or a car. So I am counting on the European Parliament and Council to reach swift agreement on our definition of simple, transparent and standardised securitisation – and to adjust capital requirements for those who invest in them.

Now, we are entering the second phase of the Capital Markets Union project. We have just launched a consultation to shape this next stage, and where we can, go further - building on the initiatives already taken. We look forward to receiving also your views.

But there are a number of areas, where work has already begun, and we need to finish it. I am thinking of our proposal to support the effective restructuring of viable business debt to give companies a second chance. But also our recent proposals to reduce the debt-equity bias in our tax systems as part of the Common Consolidated Corporate Tax Base. And our efforts to see how best to support a pan-European pensions market. On this, we now work through the responses to our consultation before coming forward with legislation this year.

In addition to what may arise from the consultation, there are also areas I am personally committed to being more ambitious. I want us to do more to support sustainable finance. These efforts need to go well beyond public finances.

That is why we have set up a High Level Expert Group to develop a comprehensive EU strategy on sustainable finance. We want to build on existing initiatives in the green bond market and its potential to finance resource efficient investments.   And determine what is needed to make it more attractive for private capital to throw its weight behind sustainable investments.

The Capital Markets Union is also about retail investors. Their investments in insurance, pension and investment funds provide the pools of capital our markets need to grow. So we want to build a genuine single market for consumer financial services in these areas. Fin tech can help us do this. It is disrupting markets and improving services. Our challenge is to make sure Europe is part of this innovation while ensuring it's safe and working for consumers.

That's why we have set up a FinTech Task Force on Financial Technology. To grip the impact of technological innovation, assess its longer term implications and determine whether existing rules are fit for purpose. It will look at new frameworks introduced in different European countries and determine whether we need to act at European level. Overall, we want to ensure financial innovation is coupled with robust investor protection. This has shaped our approach to restrictions on inducements under MiFID 2 and our drive for greater transparency and fair competition in the market. At the same time, we will be keeping a close eye whether these rules impact negatively on the choice of products available.

Ladies and gentlemen,

Sehr geehrte Damen und Herren,

Bei all diesen Projekten analysieren wir umfassend und konsultieren breit, bevor wir handeln. Wir sprechen mit Industrie, Verbrauchergruppen, Aufsehern, nationalen Regierungen und Europäischem Parlament. Das macht unsere Arbeit manchmal etwas langsamer. Es hilft uns aber den regulatorischen Rahmen so zu gestalten, dass er Investitionen in die Realwirtschaft und in Jobs für die Europäischen Bürgerinnen und Bürger fördert. Und damit einen wirklichen europäischen Mehrwert schafft. Dabei freue ich mich, jetzt und in Zukunft mit Ihnen zusammen zu arbeiten.  

SPEECH/17/149

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