Keynote speech by Boris Vujčić, Vice-President of the ECB, at the tenth annual conference of the European Systemic Risk Board (ESRB)
It is a great pleasure to participate in this conference marking the ESRB’s 15th anniversary.
As we know, the ESRB was established 15 years ago as the EU’s macroprudential oversight body, in response to the global financial crisis. I have contributed to its work for the past 13 years, so I feel very at home here.
In 2009 the de Larosière Group recommended the establishment of an EU-level body with a mandate to oversee risks in the financial system as a whole, going beyond the supervision of individual firms.
The global financial crisis, followed by the sovereign debt crisis in Europe, clearly demonstrated both the potential severity and the long-lasting costs of financial crises – and the importance of preventing them (Slide 2).
Estimates put the median fiscal cost of a banking crisis at around 7% of GDP for advanced economies. And fiscal costs capture only part of the damage. Financial crises can also lead to broader and persistent losses in output, employment and investment, not least because they weaken confidence.
After 15 years, however, the global regulatory reforms introduced to limit this fallout from crises are increasingly being called into question.
The banking industry sees the EU regulatory framework as erring too far on the side of caution, putting European banks at a disadvantage. It suggests that capital requirements are constraining the provision of bank credit to the real economy, and that lowering them would make banks more competitive. But if we recall the generalised fragility of banks’ balance sheets 15 years ago, there is little doubt that, had banks entered the crisis with the stronger balance sheets of today, the economic costs would have been considerably lower. The fact that our banks are profitable and of sound standing today is a strategic advantage for Europe, because a resilient financial system is a prerequisite for sustainable economic growth.
At the same time, I agree that such resilience does not necessarily require complex rules. The same level of resilience can, in many cases, be achieved with simpler ones. I remember much simpler rules being discussed within the ESRB some 12 or 13 years ago, when Mark Carney was First Vice-Chair and Martin Hellwig was Chair of the Advisory Scientific Committee. But there was a lot of pushback at the time, and the rules have instead become gradually more complex. Complying with EU rules has become increasingly complicated and burdensome, and there is a clear case for simplifying them.
So today let me make the case for simplification – which can contribute to a prosperous financial sector – and at the same time focus on what will really make banks more competitive, namely financial integration in a truly Single Market which fosters economies of scale.
Simplification
At the end of last year, the Governing Council of the ECB put forward a set…
Read More: Building Resilient, Integrated and Competitive European Banking Sector
