The EU made the European banking system more resilient against economic shocks, changed the internal practices of banks to avoid risky business, and made sure that bank shareholders – not taxpayers - have to pay when a bank crashes.
The EPP Group was the driving force behind these comprehensive changes in the banking sector, while making sure that these changes do not hamper, but rather increase, banks' ability to fund small and medium sized enterprises (SMEs). For the EPP Group, the first purpose of banks is to finance the real economy. The EPP Group also pushed for making Europe more of a single banking market and a single capital market, in order to offer more financing options to the economy. While doing so, the EPP Group prioritised risk reduction measures over risk mutualisation measures.
Most important measures
Following the 2008 financial crisis, the European Union set up new prudential and resolution rules for banks. These included new Capital Requirements (how much money should a bank put aside to withstand economic shocks), Bank Recovery and Resolution rules (how to deal with failing banks) and a Single Resolution Mechanism (how to reduce the impact of failing banks on the real economy).
These rules aim to reduce the probability of bank crises and their negative impact on the stability of financial markets and on taxpayers. After being set up quickly after the crisis, these rules needed evaluation and fine-tuning.
The Banking Package (also known as the Risk Reduction Package)
In November 2016, the Commission presented a law package to further reduce risks and strengthen the resilience of European banks. At the same time, reforms should improve the funding conditions of the real economy.
The law package, which changed Capital Requirements and Recovery and Resolution rules, was finally adopted in 2019.
The changes include:
- more risk-sensitive capital requirements for banks (risky businesses requires more own capital - less risks less capital)
- binding rules for the ratio between debt and equity
- new liquidity requirements
- additional requirement for systemically important banks to hold minimum levels of capital
- harmonised rules on the position of bondholders in the bank creditors' hierarchy in insolvency (who gets money first, when a bank fails etc.)
- more proportionate and flexible reporting and remuneration requirements for smaller and less complex banks (to reduce bureaucracy and make it easier for small banks to lend to SMEs).
To make the European Monetary Union stronger and more resilient, the EU has been working to integrate the financial system. Allowing for private cross-border risk sharing reduces the need for public risk sharing. That is why the EU has been and is working on completing the Banking Union and to further develop a Capital Markets Union.
In July 2017, Member States set up an 'Action Plan to Tackle Non-Performing Loans in Europe'. The high percentage of sour loans in the books of the banks of some member countries (e.g. Italy) is a risk to the financial stability of the EU's entire banking system. In 2019, a new law requiring European banks to reduce the number of non-performing loans and avoid the future accumulation of such loans in their balance sheets was adopted. For the EPP Group in the European Parliament, the successful completion of this Action Plan and other risk reduction measures are a precondition to complete the Banking Union in the new legislative term.
The Banking Union is made of a Single Rule Book for all financial institutions with a single supervisory mechanism and a single resolution mechanism for banks. The union applies to countries in the euro area. Non-euro area countries can join, if they want. The purpose is to ensure the financial stability of the EU economy, which is a prerequisite to achieve sustainable and inclusive economic growth and to create jobs.
The first two pillars of the union – supervisory mechanism and resolution mechanism – are now in place and fully operational. However, a common system for bank deposit protection has not yet been adopted.
The EPP Group will work towards the full implementation of the European Deposit Insurance Scheme once significant risk reduction has taken place.
Capital Market Union
In September 2015, the European Commission proposed an action plan of over 30 measures to establish an integrated capital market in the EU by 2019, the so-called Capital Markets Union.
The aim the EPP Group pursued is to create well-developed and integrated capital markets to strengthen and support the Economic and Monetary Union and the international role of the euro. Efficient capital mobility makes the economy stronger by supporting economic convergence. It allows Member States to benefit from additional sources of funding for investment in jobs and growth. A fully-fledged Capital Markets Union makes private risk sharing easier and helps mitigate economic shocks by enabling investors and companies from a country experiencing a downturn to access investment and funding opportunities in unaffected countries.
The EPP Group is committed to continue working for the completion of the Capital Markets Union to increase the growth potential of the EU economy. We have been the driving force behind these comprehensive changes in the banking sector and financial markets, always balancing regulation and entrepreneurial spirit, avoiding and reducing bureaucracy and focusing on financing the real economy.