The Banking Union, what's in it for Sweden Stockholm, 16 March 2018 - - PowerPoint PPT Presentation

19/03/2018

2

The Banking Union, what's in it for Sweden

Stockholm, 16 March 2018

John Berrigan, DG FISMA

19/03/2018

3

Financial crisis and EMU (1)

• EMU not prepared for impact of global financial

crisis

➢ Cross-border banking predicated on centralised crisis

response

➢ Decentralised response triggered return of "home

bias"

➢ Re-fragmentation created bank-sovereign nexus ➢ ESM/ECB only temporary responses

19/03/2018

4

Financial crisis and EMU (2)

• Financial crisis revealed EMU weaknesses

➢ No crisis management framework ➢ Gaps in financial regulatory framework ➢ Inadequacies in national supervision ➢ Absence of credible resolution options ➢ Taxpayer exposure to bank failures

19/03/2018

5

Financial crisis and EMU (3)

• Banking Union a response to EMU weaknesses

➢ Institutional framework to prevent/manage crisis ➢ Build on reform of EU financial regulatory framework ➢ Centralise/enhance supervision ➢ Centralise/enhance resolution ➢ Maximise protection for taxpayers from bank failures

Banking Union architecture

Single Rulebook EU28

Single Supervisory Mechanism EU19+ Single Resolution Mechanism EU19+

Resolution / Liquidation Financing (SRF/EDIS/BSTP) EU19+ CRR/CRD IV BRRD DGSD

19/03/2018

19/03/2018

7

Banking Union-what is there?

• BU partly in place…

➢ Single rulebooks (CRD/CRR, BRRD, DGSD) ➢ Single Supervisory Mechanism (operational Nov 2014) ➢ Single Resolution Mechanism (operational Jan 2016) ➢ Single Resolution Fund (operational Jan 2016, accumulated

and mutualised over 8 years)

• … but some key elements missing

19/03/2018

8

Banking Union-what is not there?

• BU still needs…

➢ Common deposit insurance scheme (not agreed by MS) ➢ Common fiscal backstop (agreed by MS)

• … and Commission seeks progress on both

19/03/2018

9

Why is EDIS/Backstop needed?

• BU working but not delivering full potential…

➢ If depositors across BU do not feel equally safe ➢ If credibility of resolution not absolute ➢ If stakeholder incentives are not fully aligned

19/03/2018

10

Risk reduction and risk sharing

Roadmap of RR and RS measures in June 2016

➢ Risk reduction:

➢ Banking Package (Basel 3, TLAC/MREL) ➢ (NPL/Level III ) ➢ RTSE

➢ Risk sharing:

➢ EDIS ➢ Backstop

No timeline – disagreement on sequencing vs parallelism

19/03/2018

11

Banking Union – next steps

➢ HSoG call for progress in deepening EMU by

June 2018

➢ FinMin focus on building BU Roadmap (June

2016)

➢ COM Communication (October 2017) could

unblock EDIS (liquidity versus loss absorption)

➢ Technical work underway – quantification of

RR and sequencing

19/03/2018

12

What's in it for Sweden

➢ Benefits of BU optimised in EMU ➢ SE would still benefit as part of larger financial

space

➢ BU offers prospect of more integration… ➢ …based on centralised architecture

➢ Participation in BU policymaking ➢ Consistent supervision/implementation of rules ➢ Credible resolution/liquidation framework

19/03/2018

13

The Banking Union, what's in it for Sweden

Stockholm, 16 March 2018

John Berrigan, DG FISMA

Sweden and the Banking Union

State Secretary Karolina Ekholm SNS/COM seminar, March 16 2018

Ministry of Finance

15

➢ Reform with potential to make EMU robust to financial crises in individual MS.

• Breaking the “doom-loop” between banks and sovereigns.

➢ Promote the single market for financial services.

• Integrated markets + National rules and decision-making = Problems

Why is the Banking Union Important?

Ministry of Finance

16

Why is the Banking Union Important for Sweden?

➢ A robust EMU is crucial to outlook for the Swedish economy. ➢ Swedish financial sector closely integrated with the rest

• f the EU.

➢ How much do risks in national financial systems have to be reduced before risk sharing mechanisms (backstop for SRF, EDIS) can be put in place? ➢ Straightforward risk reduction indicators ‒ NPL, capital, liquidity ➢ More controversial:

• Indicators on sovereign exposures
• Indicators to track progress on the

build-up of bail-in buffers, including amount of subordinated liabilities

Risk Reduction vs. Risk Sharing

Ministry of Finance

17

10 20 30 40 50 60 70 80 90 100 AT BE CY DK FI FR DE HU IE IT LV LU MT NL PL PT SI ES SE UK'

Banks net position to domestic sovereign as percent of total net position to sovereigns. Source: EBA

➢Important elements have now been in place for some time

• SSM, ESM, SRM

➢Brexit ➢Denmark will take a final decision by autumn 2019 ➢Nordea

Why Study Pros and Cons of Banking Union Membership Now?

Ministry of Finance

18

Non-paper on the Future of EMU

Ministry of Finance

19

➢ Discussions should take place in inclusive format (EU27). ➢ A stronger EMU requires actions at national level and compliance with rules. ➢ Focus on initiatives with public support and that are most central for a well-functioning EMU.

• Initiatives that are crucial for delivering stability and increases growth

potential.

➢ Prioritise completing the Banking Union. ➢ Strengthen ESM. ➢ Support implementation of structural reforms.

• While respecting national responsibility for such policies.