Tag Archives: European Commission

European regulatory perspectives: Less is more!

Maxime Bablon, 9 September 2016

Post originally published on SAB

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Jonathan Hill, former European Commissioner, took stock of his achievements on July 12, during a speech at the Bruegel Institute. He drew up the work carried out during his mandate as Commissioner for Financial Stability, Financial Services, and Capital Markets (FISMA) and detailed upcoming challenges for the institution.

Strong supporter of ‘smart regulation’ taking into account the financial sector’s specificities, the former Commissioner stressed the possibilities to enhance the regulation by stepping back and to harmonize the multiple texts issued in recent years.

Here are five key take-home messages from his speech, providing a good overview of ongoing challenges regarding EU financial regulations:

  • Growth and risk dilemma: In holding that ‘without risk there is no growth’, the British has put a cat among the pigeons. Main target: the aggregation of individual risk aversion which may cause a market risk and impact negatively the financial stability as a whole. This argument correlates with the analysis carried out by a consulting firm, estimating the decrease of the net banking income from -1.64% to -1.93%[1] for major banks subject to the Tax on Systemic Risk over the next decade. For the Commission, the decrease of the European growth domestic product (GDP) shall reach around -0.15% for each percentage points increase of the common capital ratios (CET1). Negative impact should remain cyclical and be cleared after 2019[2].
  • Keep it simple to rule: For the former Commissioner, the current regulation is so complicated that only a handful of lawyers and compliance officers can fully understand it. This constitutes a strong challenge for the long-term sustainability of the banking union. The lack of clarity in textual reference feeds the reluctances of national compliance officers in charge of the implementation of these regulations (for example financial reporting (FINREP) refers to a whole variety of texts to fill out the templates, some of which go back as far as 1978[3]).
  • Streamline and create synergies: Several regulations can conflict in their scopes and objectives. For instance, the leverage ratio has increased the cost of clearing, in contradiction with European Market Infrastructure Regulation (EMIR) requirements which aims to… increase the number of transactions going through central counterparty clearing houses (CCPs)! On these points, Jonathan Hill called for capitalizing on direct consultations to avoid crossfire between regulations and seize the opportunity to review existing regulations. For further flexibility, he also proposed to exempt certain players from clearing obligations (non-financial counterparties, pension funds and some small non-systemic financial companies, etc.).
  • Differentiation and proportionality principles: It occurs that enforced regulations do not take sufficiently into account the diversity of players, whether in terms of business model, risk profile and entity size. The capital requirement regulation review should focus on this point, especially regarding prudential requirements. The former Commissioner has mentioned the standard approach taken to define the credit risk and the margin for systemic risk. He implied that these factors impact negatively on the competitive advantage of small and medium banks. The simplification of the capital requirement calculation or the introduction of a specific exemption for smaller players – such as the credit unions – could be carried out to better take into account each actor’s specific characteristics.
  • Reduce the reporting burden: In accordance with the consultation carried out last year by DG FISMA, several entities have complained about information overlapping between the reports displayed (ex. EMIR, Markets in Financial Instruments Directive II (MIFID II) and the Securities Financing Transactions Regulation). For instance, Jonathan Hill mentioned the possibility to review EMIR to “avoid ‘dual reporting’ obligation, at least for non-financial firms”. Moreover, if the Commissioner welcomes the increase of data exchange between the national and European regulator, he wonders if “it [data exchanged] is all essential”. This quote also reflects the need to clarify tasks between the multiple regulatory layers (National authority, European Central Bank (ECB), European Banking Authority (EBA) etc.).

In the wake of the crisis, the banking union was set up within a very short time. It permitted to harmonize the prudential and resolution standards over a set of heterogonous countries, which was anything but easy. Given that the framework is now defined, regulators can start focusing on quality, in particular, by taking into account feedbacks given by financial services’ professionals (inter-text synergy, proportionality, optimization of the reporting scope, subsidiarity principle, etc.).

Valdis Dombrovskis (the new Vice-President of DG FISMA) has declared his will to pursue the work building upon the guidelines set up by his predecessor. However, other challenges are looming ahead, in particular the complex issues of the European deposit insurance scheme or the implementation of the capital markets union. Eventually, the main recommendation granted by the former Commissioner is to regulate less but better.

To go further:

[1] Banks reviewed are BNPP, CASA, SG and BPCE (see here)

[2] Capital Requirements – CRD IV/CRR – Frequently Asked Questions (see here)

[3] This is the case in particular with 4th council directive (78/660/CEE)

 

 

Maxime Bablon – Marie Sklodowska-Curie promotion (2012) – works as bank regulatory compliance consultant between Paris and the Maghreb in a French FinTech (Sab IT).

Greece Will Not Default

Phedon Nicolaides,  14 June 2015

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Source: University of Illinois, 2011

As the markets are becoming increasingly convinced that Greece will soon default, here is a bold prediction: Greece will not intentionally default. The word “intentionally” is a hedge against accidental default.

Why do I even entertain the idea that I know better that the markets? The reason is simple. Until three days ago most economists had not considered how a judgment of the Court of Justice would have changed the trade-off between repayment of loans and default. Before I explain the significance of that judgment, we need first to understand the options which are open to a sovereign which contemplates defaulting on its obligations. Continue reading

How sound economic analysis can lead to counter-intuitive results

Phedon Nicolaides, 14 September 2014

Introduction

On 11 September 2014, the General Court, in case T‑425/11, Greece v Commission, sided with Greece and annulled Commission Decision 2011/716.[1] Greece had appealed against that Decision in which the Commission found that certain casinos had received aid that was incompatible with the internal market. Continue reading

Commissioners as Competitors – Competition and Policy Coherence in the Juncker’s Commission

by David Rinaldi – 12/09/2014

Spreading similar responsibilities across portfolios has been a clear strategy of President Juncker, we try to understand why that can be a good thing.  

4 Commissioners in Economic MattersPresident Juncker announced the portfolios of the new European Commission. As choosing the team of 28 commissioners is not in the hands of the Commission’s President, Mr Juncker could only express his creativity in the definition of the portfolios and in the allocation of the seats. We can conclude that he has been quite creative.

Despite the EurActiv leak, which already allowed to get a taste of the new set-up, the final allocation of portfolios left room for a certain fuss. In particular, Mr President has generated debate by breaking up certain portfolios – those dealing with economic and environmental matters for instance – and by merging others – climate change and energy for example.

Continue reading

The German Energiewende: drying up or moving forward?

Raimund Bleischwitz*, 6 March 2014

The Economist, 2014

The Economist, 2014

The expected change in the German government in late 2013 has marked a turning point in the country’s Energiewende – the plans to phase out nuclear energy by the year 2021 while continuing to reduce energy-related greenhouse gas emissions and to derive at least 80% share of Germany’s electricity from renewable energies in 2050.

Putting a grand coalition into power could be translated as a voters’ voice to gain without pain. And that’s exactly the challenge. Continue reading

Barroso’s promise of a federal Europe is an insult.

On May 9th, Europe celebrates its “independence day”, in commemoration of the 1950 Schuman declaration. This event should also constitute a moment of reflection, in a time of great difficulty for the European project. However, some European leaders seem to think that empty propaganda is more important than a serious debate.

Instead of fueling a long-awaited discussion on the future of Europe, Jose Barroso, the President of the European Commission, declared in an interview to the “Telegraph” yesterday that Europe will soon become “Federal”: an announcement that is not only a political mistake (it will give clean arguments to the British conservatives against staying in the Union), but also an incomprehensible statement in a time when confidence in the EU is waning.

The statement comes just a few days after economic data in the EU certified the double-dip recession even in the “core” – with German growth being sluggish in the latest quarter – and the rise in unemployment in the bloc, now at 12.1%.

Furthermore, an anti-EU feeling is now spread all over the continent, with peaks in the UK where the UKIP – a traditionally weak party in internal elections – scored a stunning result in the latest local vote.

A voice in defense of President Barroso might say that “the Commission is not responsible for Euroskepticism, but governments are”. Sure, national politicians have their responsibility, but the institution that is supposed to be the “guardian of the Treaties” has done little to avoid this loss of faith.

The European Commission, which President Barroso so shallowly presided for the past eight years, has been constantly overpowered throughout the crisis by national politics and by other European institutions. Its Lisbon Strategy proved to be a disaster (“making Europe the most competitive marketplace in the world by 2010…”), its project for a “job-rich recovery” is very far away from accomplishment (there is no recovery, let alone a job-rich one), its request to have a say in the most important issue of the crisis – banking supervision through its agent, the EBA – was dismissed by the Council, who also created an exemption for the Landesbanken, German regional banks that a different Commission had once tried to stop from using public guarantees to do speculative trade. Finally, national leaders also quickly dismissed a project for a mutualization of the Euro-zone debt through Eurobonds, launched by Barroso in 2010.

The president’s “state of the Union” addresses (what a pompous and inappropriate name…), for the past three years, have certified the state of denial of the crisis, of the institutional turmoil, of the decadent role of the European Commission itself. It is a decadence that is equally due both to the rising power of national politicians and to the inefficiency and the lack of vision of the European Commission leadership. The main actors on the scene are now other institutions – the Eurosummit, the ECB, the Council – whose priority is to reinforce the monetary Union and certainly not to create a federal Europe.

The legacy of these eight years of Barroso’s presidency is evident and could be easily summarized: a few unconvincing speeches, a constant incapacity to negotiate from an even position with national politicians and with the other institutions, a lack of initiative that clashes so stridently with the abundance of declarations of principle.

A serious, intense and constructive – but real – debate on the future of Europe should be launched, but it’s doubtful whether the current president of the Commission still has the credibility to do so. It is doubtful even whether the European Commission has the political strength to “force” that debate in the EU.

Ironically, a good recommendation for president Barroso comes from the Greek tradition: “words are silver, silence is gold…”

Alfonso Ricciardelli