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EU banking policy and regulatory issues

Context

European banks fared the coronavirus (COVID-19) pandemic with stronger capital positions, higher liquidity buffers and better asset quality. This time European banks have been part of the solution, although these positive developments have been made possible also thanks to exceptional support measures from public authorities.

However, a negative impact from such a shock is eventually unavoidable provided that the public support is reaching limits while a stagflation risk is unfolding.

In addition, the fact remains that the European banking sector was already beset by structural weaknesses when the Covid crisis hits: persistent low profitability caused by excess capacity, lasting very low interest rates and low-cost efficiency has been driving bank valuations to historic lows.

Technology also opens the gates to further non-bank competition (such as from big tech firms), while at the same time providing scope to exploit new business opportunities.

Furthermore, banks also have to address the global emerging challenges posed by topics such as climate-related financial risks, cyber risk, and operational resilience.

Related regulatory challenges will add to those stemming from the implementation of the most recent additions to the banking regulatory standards – Basel III – launched in the wake of the 2008 financial crisis, which are expected to be implemented factoring in EU financing specificities.

Contributions to the policy debate

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)

Public and private
sector views

Public authority views

EU banking challenges

D. Beau - Banque de France - Challenges for the EU banking sector in the COVID context: no time for complacency - April 2021

P. Callesen - Danmarks Nationalbank - Back to markets - April 2021

J. M. Campa - European Banking Authority (EBA) - Regulatory completion and effective implementation - April 2021

L. Máximo dos Santos - Banco de Portugal - Unusual crisis, unusual measures, big challenges - April 2021

J. Fernández - Committee on Economic and Monetary Affairs, European Parliament - Time to complete the Banking Union for a strong recovery - April 2021

E. Fernandez-Bollo - European Central Bank (ECB) - How healthy is the European banking sector in the pandemic? - April 2021

L. Garicano - Committee on Economic and Monetary Affairs, European Parliament - To have bank mergers the priority must be to complete the Banking Union - April 2021

S. Raspiller - French Treasury, Ministry of the Economy, Finance and the Recovery Plan, France - The completion of the Banking Union should aim at improving the profitability and the competitiveness of EU banks - April 2021

B. Vasle - Bank of Slovenia - New and old challenges for European banks - April 2021

K. Wiedner - DG for Financial Stability, Financial Services and Capital Markets Union, European Commission - Addressing the fall-out of the Covid-19 pandemic on the financial system - April 2021

Implementing the Basel framework in Europe

A. P. Serra - Banco de Portugal - Building resilience of the EU banking system through regulation - April 2021

L. F. Signorini - Banca d’Italia - How should Basel banking standards evolve now? - April 2021

O. Karas - Committee on Economic and Monetary Affairs, European Parliament - Making financial markets work for the Future of Europe - April 2021

G. Haber - Oesterreichische Nationalbank - Lessons from the COVID-19 pandemic and how regulatory banking standards should evolve - April 2021