In the news on financial services at the moment are the recent Commission Green Paper, the Capital Requirements Directive and the creation of a single market for financial services. One of the main actors in these important developments is the Committee of European Banking Supervisors (CEBS). EURACTIV spoke to Freddy Van den Spiegel, Chair of the CEBS consultative committee, about these issues and others.
Could you tell us about CEBS and your role within it?
CEBS is one of the level 3 Lamfalussy committees (like CESR for markets and CEIOPS for insurance) It has a major role in helping the Commission in the comitology procedure to get level 2 directives on the road.
I am in the CEBS consultative panel. CEBS itself is the supervisor and has organised a consultative panel of practitioners, industry representatives. The mission of the panel is to help CEBS in setting up planning, finding priorities and signalling major issues and problems. So the panel does not overlap with the normal consultation procedures: it is more a think-tank for CEBS.
There is one major priority issue for CEBS: implementation of the Capital Requirements Directive (CRD). Within the CRD, the question then is: what are the issues we should tackle first – disclosure; Pillar 2; home/host issues? There are a lot of chapters to the CRD and each chapter is a huge work stream. So the mission for CEBS is huge. And the pressure is high because the deadline is close. And the directive itself is still being discussed.
The Parliament has just approved the CRD report. But want some call-back procedure. Can you comment on the dispute between Parliament and the Commission over the call-back procedures in the Constitution?
This is not an issue for CEBS. CEBS is in a way the victim of a dispute between Parliament, the Commission and the Council. Until now there has been a gentleman’s agreement and there was confidence that even if there is no established call-back procedure in the current treaties, it would be respected.
It was hoped that with the Constitution that agreement would be embedded in the new Treaty framework but now they will have to find another way. Things could remain the way they are but you have a big problem as to how strong is the gentleman’s agreement.
I think the institutions will find a solution. If every small implementing measure had to go through the Parliament, it would be impossible. In a very technical matter like banking supervision, for each parameter, you have a model. The market circumstances change and if you always had to go through the whole procedure of Commission, Directive, Council, Parliament etc, in the meantime, the markets are miles away.
In Lamfalussy, there are directives which are the basic principles which should be level one. This is the broad political debate in which all parties should be involved. Then there is the implementation which can become very technical and which has to be flexible to adapt to market changes, this should be left to technicians – to level 2. Level 2 is advised by level 3 – which is CEBS.
At what point would you put the break between the levels so that democratic input is maintained?
There are calls that within Lamfalussy there should be clear decisions as to what is level 1; what is level 2; what level 3. But you will always have a grey zone. You can never say this point is for level 3 and this is exclusively for level 1 because it depends on the circumstances. So how do you organise the grey zone? The call-back procedure functioned well. The grey zone remains grey but it does not stop the system from working. And you can at any point take any point back for fundamental discussion.
Now, because the Constitution will not happen tomorrow, another solution has to be found. But it would only be a problem if there is a battle for power between the three institutions – which would be a very bad sign for Europe in general.
Democratic control is never bad but if the democratic control is so slow and so heavy that it is a fundamental hurdle to good regulation, then democracy can be bad. So it is a question of being sensible. And the call-back procedure, as it has functioned up to now is not too bad. Parliament has the right to call-back and as long as the technicians stick to the technical details there is no call-back. Parliament should only step in if they think the technical people are going too far. But it is difficult to draw the line. The sum of a number of technical issues can become very fundamental.
Everybody recognises that as financial markets evolve very quickly and as the rules of supervision have to follow market practices, you need a flexible set-up for the rules: you need to delegate certain things.
Do you see a point at which the work of CEBS will be completed?
No – I don’t think it will be. We now have Basel II and CRD but at some point there will be Basel III. So CEBS, like supervisors will be permanent.
If Europe becomes more and more an integrated financial market; you will get more cross border multi-country financial institutions. In that case, it does not make sense to have 25 different supervisors, all with their national mandate and with each supervisor doing what he thinks is best. So there is a need for convergence of supervisory practices. This is the mission of CEBS – to implement uniformly the financial directives – so that all supervisors use the same rules books, the same tests, the same reporting schemes.
In an integrated financial Europe we need European best practices and not 25 national best practices; this is a gradual process. As Charlie McCreevy describes it in his green paper, we want evolution, not revolution. You need to give people time to understand each other, to develop trust in each other.
On the lead supervisor, is CEBS not the ideal body to form this lead supervisor?
Certainly, what CEBS does is not in contradiction with the idea of a lead supervisor. In each country, you have fully fledged supervisors with their different departments. And then you have one representative going to CEBS. So today CEBS cannot be a lead supervisor – it is a secretariat with a couple of people performing a lot of administration to put people together to formulate common consultation papers. And then the supervisors go back home and they try as best they can to implement what they have discussed in CEBS. So today CEBS is a platform for discussion and debate but CEBS as such cannot take decisions.
The idea of the European Financial Services Round Table is that for banks, the lead supervisor would be that in the country of the mother company. But all the supervisors sit together as CEBS. And this makes the concept of the lead supervisor easier: co-operation is facilitated thanks to CEBS. To transform CEBS into a lead supervisor – you could do it, but that is revolution. That is clearly not what the Commission, the supervisors or the politicians want (though sometimes they discuss it). Certain banks do want it. They want something comparable to the European Central Bank: you don’t merge the supervisors, but all the national ones become subsidiary to a central supervisor. And CEBS then decides what the local supervisors are going to do.
I think today it is too early. What is most important today, for cross-border financial institutions and for financial stability in Europe is that the supervisory framework should be efficient and effective. So supervisors should not overlap in their activities because as a cross-border bank, it is not possible to comply with different supervisors who each have different visions. And supervisors themselves agree that they have to come together so that they can, if you like, act as one. But that is not necessarily the same thing as merging.
Once they get to the point where they really act as one, with the same approaches, the same priorities, the same rule-books, then perhaps you could ask the question politically: is this functioning? Then you could have two outcomes. You could say: it is functioning so it is OK. Or you could say, as it is functioning, why keep them separate – why not make them one? That is a purely political decision.
What is key is that they act as one. Most of the industry is neutral on the political aspect. If the supervisors are acting as one, it doesn’t make any difference.
How do you think Europe is progressing on banking consolidation? Should the Commission be doing more?
Banking consolidation is happening. There are numerous examples. Not perhaps throughout the EU but in a number of countries. It is becoming more and more difficult to say what the nationality is of any particular group. Ten years ago all big banks already had cross-border activities, but most of the time it was big mother companies with small subsidiaries in a number of countries. But what you see happening now is that you don’t know which is the mother company. Is Fortis a Dutch group or a Belgian group? Is Unicredito /HVB a German group or an Italian group? You cannot tell any more. You put your headquarters somewhere because you have to but you develop your activities in an integrated financial space where nationality disappears.
Should the Commission/Council push for more cross-border financial activities?
I think that would be very dangerous. You should not push for consolidation as a political goal. Consolidation should happen if it makes sense and that is a question of free market strategies.
Then it is a question of the Commission getting rid of barriers to mergers. And sometimes these barriers are political and you encounter difficulties between the competencies of the Commission and the competencies of the member states.
Yes. So then it is not about the Commission pushing for mergers but about the Commission eliminating unnecessary hurdles. There are always hurdles like language, culture etc but the Commission can try to eliminate hurdles for which there is no rational reason – those that are there because of history or political protectionism. You have to, as the Commission, fight national protectionism. And that’s what they are doing.
In the green paper the Commission notes that wholesale market consolidation is going fine but in retail banks it is not happening: so they asked why. Are there hidden hurdles? Some say, yes the hurdles are real but it is not up to the Commission to change them e.g. differences of language, culture. Mergers happen because the acquirer thinks he can realise synergies but in retail banking, if you have to translate marketing materials etc, you don’t easily get cost synergies. And it is not up to the Commission to say, despite this, we will still push for consolidation – even if it does not make economic sense.
But there are a number of hurdles that are not so natural. For example, article 16 of the Capital Requirements Directive. It says that supervisors have to agree to allow a takeover of one bank by another bank. It has happened e.g. ABN Amro taking over an Italian bank that supervisors say is not a suitable candidate to take over this bank. Bank supervisors have to agree to who the shareholders of a bank should be. Sometimes they make their decision based on objective elements but sometimes people suspect that the supervisors are doing it to protect their own banking system.
Do you think Article 16 is necessary – could it be done away with altogether?
This is the European model – bank supervisors have to agree on the shareholders of a bank. In other private companies anybody can be a shareholder – this is not the case for banks. In a lot of countries, the supervisor wants to know who is behind the bank because a bank is not quite a public service but it is not the same as a manufacturing company. So you could say that instead of each supervisor making up his own mind, you could say that if the acquirer is already a European bank that has a licence in its own country, that should be enough. So the supervisor of the country where the target bank is should rely on the opinion of the supervisor of the home country of the acquiring bank. This is one of the debates the Commission has started – on the application of article 16.
The conclusion is that consolidation should be the result of market dynamics, not of a political will saying that we want to consolidate. The market has to do it. What the Commission can do is eliminate unnecessary hurdles.
It tends to be assumed that banking consolidation is necessary to allow the opening up cross-border of retail banking. Is this really the case? Could we reach a situation where consumers can access services across borders without having more banking mergers?
The dream of 5-10 years ago was that the modern consumer could sit in front of his computer and online would buy his credit card in Greece and invest his money in Portugal. It is not happening. The reality is that retail banking is still an activity where people prefer to have a bank close to them that they know, where there is a branch they can go to. So if you want, as a bank, to sell your products in a pan-European way, you need to be present everywhere. You can build your own branch network but that is a huge cost, when Europe is already ‘over-banked’ so it seems far more logical to merge with another bank.
What is your vies on increasing consumer access to financial products? There are still problems with this. For example as a UK citizen, living in Belgium, it is not possible to buy UK insurance products because the product depends on residency.
That is the big issue that remains. The first thing is that if you want retail integration, you need cross-border financial groups because the customer will probably not move, even if your prices are better. He will not try to find the best price on the net – it is a question of confidence and perception. But even if there are cross-border mergers, it is still the case that some UK products cannot be sold in Belgium for example.
This is not the case for all products. More and more products are becoming more universal, pan-European. For example credit cards – Mastercard and Visa are everywhere. And there are several products where you see this movement. But each country for some products has specific rules. Very often these are to do with consumer protection. Here each country has its own history and has developed its own philosophy and these are quite different. So if you want to create pan-European products, you need to harmonise consumer protection philosophies and that directly touches the end consumer, the voters, and that is an extremely delicate thing.
This means that probably for the next decade, Europe will be faced with 25 – then later 27 or 28 – different systems of consumer protection. And within that system, you can try to get convergence but, if you think about how difficult it is for CEBS to try to converge 25 supervisors, who are all technicians and professionals, to converge 25 systems of consumer protection will be far more difficult.
So you have to try for convergence in a very selective number of areas – for example credit cards, payment systems. And there the Commission is developing the new legal framework, saying that payment should be reliable, that money should arrive within a few days and not 5 weeks. And that should be the same throughout Europe. That seems achievable. They have also done it in UCITS (the directive relating to regulations and administrative provisions on Undertakings for Collective Investment in Transferable Securities) with the European passport.
So what is next? Now the Commission is saying, let’s try mortgages. They tried but it was not successful, lets try again. And in consumer credit they have been trying for three years, it’s difficult – perhaps they will achieve something. But they need to be selective, knowing that certain aspects of local consumer protection rules in retail markets will remain hurdles and that there will not be political will to get rid of them.
What the European Financial Round Table has proposed is that we have a debate in Europe about basic principles of consumer protection instead of directly going into the details of one specific product and then fighting. For example in consumer credit, if the customer changes his mind, should you have 2 days or 3 days or 4 days? So instead of trying to discuss that, let’s try to fix a number of general principles because is there such a difference between having 3 days or 4 days. I don’t think so. But that is where all these directives get stuck. So once we have agreed on the principles, we can check to what degree the exact consumer protection rules in each country are really necessary to get to these principles. And then you can get to convergence a lot easier.
But others say, lets leave convergence for the long term, and in the meantime let’s try to develop the 26th regime where you leave all the 25 systems as they are and just create a European product. That product, which has European rules, gets a passport so that it can be sold throughout Europe.