During the last sessions organised by Eurofi on the diversity of business models, a consensus was reached between industry and public policy makers that the variety of banking business models is an asset to ensure financial stability in Europe and to meet the different financing needs of economic agents within the EU.
However, the day-to-day supervision exercised by the SSM leads to many individual recommendations and guidelines which do not encapsulate the specificities of diverse business models. JSTs are guided by standardised benchmarking, i.e. identical rules – in terms of the analysis of banks’ profitability, their cost and risk management, their modes of governance, etc. – and which does not in practice recognise the specificity of banking models in Europe although they proved sustainable overtime.
It is true that cooperative banks, on overage, may have lower profitability than their commercial counterparts. The previous Eurofi sessions highlighted the different reasons for this: a very high management buffer, a low-risk business model which leads to low profitability, and a nationwide territorial presence which allows a decentralised decision making close to clients.
Some commercial banks have a high-risk profile, which normally should lead to high profitability. It is therefore key to introduce new instruments that would allow supervisors to compare business models between private and cooperative banks, such as the residual income after distribution of the pay out to equity holders and a proper assessment of the risk/return ratio.
Cooperative banks also have a specific governance model, which is based on elections of our members, allowing us to bring a wealth of profiles to our decision making. The fit and proper process does not take into account appropriately these specificities.
The objective of this session is to assess the disadvantages and dangers for the European banking system and its customers of this “one size fits all” approach of supervision in Europe and to define the priority changes to ensure a differentiation of supervision in Europe according to business models.
Points of discussion
- What are the problems and dangers posed by the “”one size fits all”” approach to banking supervision in the euro area (for the financing of economic agents in EU countries, financial stability, financial inclusion, local financing…)?
- How can this diversity of business models be recognised in the day-to-day supervision carried out by the SSM?