10 Jul 2019

The European banking system: tackling the challenges, realising the opportunities

Executive summary available in FrenchGermanItalian and Spanish.

This paper aims to provide European decision-makers and other stakeholders with a concise overview of AFME’s priority objectives for the European Union in the area of bank prudential and resolution regulation. A broader overview of AFME’s priorities and key recommendations can be found in the accompanying publication “Finance for Europe – Building competitive, resilient and integrated financial markets. A financial services strategy for sustainable growth and competitiveness in 2019–2024”.

Priority areas in banking prudential regulation for the new EU legislative cycle

Completing the Banking Union
The completion of the Banking Union remains a key priority to achieve a stronger monetary union. This includes considering the Banking Union as a single jurisdiction in terms of prudential requirements, achieving effective depositor protection and a solution for a European safe asset.

Removing the fragmentation in European banking markets
Cross-border banks need to be able to manage their capital and liquidity at a consolidated level and to achieve diversification and economies of scale. This will also help to address their lack of profitability and excess capacity. Together with Capital Markets Union this is a powerful way to share risks and to absorb economic shocks.

Achieving an ambitious Capital Markets Union
Capital Markets Union (CMU) can increase the diversity of funding sources, reduce the overreliance on banks, and provide the European economy with a ‘spare tyre’ during economic turmoil, when banks’ ability to lend is constrained. Internationally diversified investment portfolios can also help to smooth consumption and investment in case of an economic shock in a specific region.

Ensuring openness to global capital markets
It is vital for users of financial services – corporates, investors, government bodies - to ensure that global capital markets, including the EU, remain open and closely connected.

Avoiding significant increases in capital requirements
The EU implementation of the Basel agreement should not result in significant additional capital requirements, in line with the commitment made by global and EU regulators.

Promoting global consistency
Given the global nature of wholesale banking activities, it is important that global consistency is promoted in respect of the outcomes resulting from the implementation of the prudential standards.