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

The Banking Union, what's in it for Sweden Stockholm, 16 March 2018 John Berrigan, DG FISMA 19/03/2018 2

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 3

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 4

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 19/03/2018 5

Banking Union architecture Resolution / Single Single Liquidation Supervisory Resolution Financing Mechanism Mechanism (SRF/EDIS/BSTP) EU19+ EU19+ EU19+ Single Rulebook EU28 CRR/CRD IV BRRD DGSD 19/03/2018

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 7

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 8

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 9

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 10

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 11

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 12

The Banking Union, what's in it for Sweden Stockholm, 16 March 2018 John Berrigan, DG FISMA 19/03/2018 13

Sweden and the Banking Union State Secretary Karolina Ekholm SNS/COM seminar, March 16 2018 Ministry of Finance 15

Why is the Banking Union Important? ➢ 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 for Sweden? ➢ A robust EMU is crucial to outlook for the Swedish economy. ➢ Swedish financial sector closely integrated with the rest of the EU. Ministry of Finance 16

Risk Reduction vs. Risk Sharing ➢ 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 Banks net position to domestic sovereign as percent of total net position • Indicators to track progress on the 100 to sovereigns. Source: EBA build-up of bail-in buffers , including 90 amount of subordinated liabilities 80 70 60 50 40 30 20 10 0 AT BE CY DK FI FR DE HU IE IT LV LU MT NL PL PT SI ES SE UK' Ministry of Finance 17

Why Study Pros and Cons of Banking Union Membership Now? ➢ Important elements have now been in place for some time • SSM, ESM, SRM ➢ Brexit ➢ Denmark will take a final decision by autumn 2019 ➢ Nordea Ministry of Finance 18

Non-paper on the Future of EMU ➢ 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. Ministry of Finance 19