For many, the banking union represents the most ambitious step in EU integration since the creation of the euro. Elke König, the chair of the authority to resolve European systemic banks, has been in the driving seat of the process.
In an interview with EURACTIV.com on Thursday (25 July), König put forward new ideas to bolster the common framework. As one of the very few women leading an EU institution, she also disagreed with gender quotas to ensure women have the same opportunities, a top priority for the new European Commission president, Ursula von der Leyen.
Elke König (Köln, 1954) became the first person to chair the Single Resolution Board in 2014. Prior to that, she was in charge of Germany’s Federal Financial Supervisory Authority.
She spoke with Jorge Valero in an exclusive interview.
If we may start with a question on EU top jobs. You are one of the very few women leading an EU institution. Christine Lagarde will become the first female president of the ECB in November. But her nomination has been controversial given that she is not a central banker, and her deputy, Luis de Guindos, was also a former minister. What is your opinion?
Madame Lagarde was in the IMF beforehand. I firmly believe that no institution is single-handedly run by its chair. Don’t believe that I am the only person in the SRB that takes any decision and knows everything.
But I would like to take a more general position. When I started my professional career, there were less women in the industry. I’ve always believed in the fact that you have chances, and you can grab them or not. When we recruit, the first thing to look at is the talent, the knowledge, the quality.
Gender cannot be the driving force. Quotas have never been something I was firmly believing in.
But is it the current gender imbalance the result of female candidates refusing to take the opportunities they may have or precisely because they did not have those opportunities in the first place?
I have had long debates over the years with all kinds of reasons. You hear people saying there is a glass ceiling, or that there is no role model. Clearly, we need to encourage people. And, when you talk to young ladies, and you said there is an opportunity, sometimes they ask you: ‘Do you think I could do it?’ A young gentleman never asks you ‘Can I do it?.’ Obviously, not being so self-assured is more female.
For me, the most important part of the gender balance debate is that, when I see a list of suggested candidates, I would normally ask why are there only certain nationalities? Or why are there only men? You look at who has applied for a job.
The banking union was tested during the resolution of Banco Popular, which was described as a success. But at the same time, you admitted that you were lucky. How come?
We did exactly the right thing in that case. There was no impact on financial stability, and the critical functions of the bank were preserved. We admitted that we were lucky. We always were working, and we are still working, under the assumption that a larger bank will most likely be considered failing or likely to fail on a Friday. Then you have a weekend to work on it. In the case of Banco Popular it was on Tuesday evening.
Why were you lucky?
On one hand, we had excellent cooperation with the Spanish colleagues from Fund for Orderly Bank Restructuring, and the Bank of Spain. Of course, they were well prepared because of the financial crisis in Spain. They really knew what to do. Secondly, we were lucky in the sense that basically, the management of Banco Popular had prepared the ground. They had tried to find new shareholders or to sell the bank.
When we stepped in, basically we could jump on the work that had been done by them. When we approached the interested parties, these were entities that already had a look into the data and had already a chance to make up the mind.
What lessons did you draw from this case?
We may ask ourselves: what if we hadn’t found a buyer who could immediately restore liquidity? What if it is a larger bank? What if we would have had to go one step further, because there were more losses to be covered? I think we all were working in the past under a bit of wishful thinking assumption. You need a bail-in mechanism, to restore capital. But on Monday morning, the bank goes back to the market and it does not have any additional collateral out of the pure bail-in mechanism. So if we hadn’t been able to sell Banco Popular, it would have been for the resolution decision to provide liquidity to the bank.
What options are on the table then?
Spain did not have the instrument to buy yourself a bit of time called ‘moratorium’. The new EU bank recovery and resolution directive (BRRD) now has a two-day moratorium tool. When I was asked about our plan B during the night Banco Popular was intervened, the answer was simple: ‘Plan A has to work’. The moratorium is, if ultima ratio, you need to buy time.
Since our fund has increased, we will have a bit more room, but never enough, to deal with a global systematically important banks (G-SIBs). This is why we push hard, together with the European Commission, the member states, the ECB and others to put in place a liquidity facility in resolution. The idea is to provide liquidity for, let’s say, four weeks, three months, to be replaced once the bank is getting back into normal market practice.
What would the firepower be?
We will get €60 billion backstop credit line from the European Stability Mechanism by the end of 2023, plus we will have around €60 billion collected [from the banks]. This means we have €120 billion of firepower to use for recapitalisation or, under conditions, for liquidity. It could have solved our problem in the case of Banco Popular. But we are paid to worry. What if a global systematically important bank gets into trouble when its liquidity needs can easily reach €100 billion or €150 billion? It would mean you empty your fund with one bank.
What is the option?
As the American example, you can have a credit line provided by the central bank for resolution. In that case, the central bank needs to have collateral for guarantees. An option that would only work as concerted action is between the ECB, the SRB and perhaps the ESM as a backstop behind. We’ve said from the very beginning that we were willing to take the first loss, if you need kind of a first loss guarantee for this liquidity.
At what stage of the process are you?
The liquidity is still in the drawing up phase. I know that the ECB wants as much collateral as you can get. Member states say as little as possible, and we are a bit in the middle. This will take time. It would help if, at the end of the Finnish presidency, we have somehow an idea of how to solve it. For the time being, we are exploring all kinds of ideas. But I think we all understand what is at stake. Now it’s a question how do we do it.
In regards to new challenges the financial system face, is Facebook’s Libra project a threat to the banks’ results, or the financial stability?
Libra, for me, is still a miracle. I have a lot of papers in my bag, and they are traveling with me. I am concerned. I’m not sure whether Libra is a currency. I’m not even sure what it is. I’m very much aware, and rightly so, that central banks including the ECB are looking very deeply into this.
Is it because it could affect the stability of sovereign currencies?
It could affect quite a lot of things. But I would go back to banks’ profitability, which is under pressure. There is no one single reason, but one is clearly that the market is a bit crowded. There is heavy competition, which is good for us as customers, but perhaps bad for the banks. Secondly, banks may have been a bit too easy in addressing the changing needs of the customers. We also need to be mindful that, in payment services and other areas, we stick to the principle of “same business, same risks same rules”. We should not allow having some players facing a lighter touch, and others having a heavy regulation.
Edited by Samuel Stolton