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I am really sorry not to be with you for your conference and to have the chance to discuss the work that we have been doing together to strengthen the banking union.
The first and most striking point is just how much has been achieved in recent years.
The financial crisis revealed how unprepared we were to deal with the failure of large banking groups. As Martin Gruenberg, Chairman of the FDIC, said last week: without a framework in place we were "forced to choose between two bad options: taxpayer bailouts or financial collapse."
It was because we had to address that problem – combined with particularly severe challenges in the euro area – that we started work on building the Banking Union in 2012. At its core was a simple goal: to create a more resilient banking sector, to protect depositors and to protect taxpayers.
The first leg of Banking Union - the Single Supervisory Mechanism – has just had its second birthday. Its second leg – the Single Resolution Mechanism – is also now part of the landscape. It is easy to forget that it was only launched a year ago and it is only 4 months [] since it formally opened for business. So let me thank Elke KÓ§nig and her team for all they have done in setting up the SRB from scratch and on schedule.
But Elke herself would be the first to say that there is still lots to be done to make sure that we're in the best possible position to resolve a failing bank.
I am sure she will say more later about what some of those tasks are, including the drawing up and assessment of the resolution plans of all significant banks operating in Europe.
But from my point of view, I wanted to underline the importance of trust: the importance of trust between institutions in the new set-up; the importance of the trust of industry and Member States; and of course, the importance of the trust of the general public in the financial sector and in the ability of regulators to oversee it.
That means there needs to be a clear understanding between us all, between the relevant national authorities, the SSM, the SRB and the Commission. This involves setting out clear working arrangements, based on a full flow of information, getting all the processes and procedures right when we may have to act quickly. Above all, it means deepening the way we work together so that when we are faced with a common problem, we are able to tackle it together.
The prize is a big one. No more bank runs. Peace of mind for depositors wherever they have deposited their savings. Our whole system, stronger and safer.
But for the new system to work, creditors will need to understand the risks to which they are exposed. They need to know how a possible resolution might pan out and what it would mean for their investments. It is all very well for regulators and experts to talk about bail-in. But those who are going to be bailed-in – the bank shareholders, bondholders and creditors – need to understand clearly that the rules have [..] changed. So we all need to explain [..] how the new system will work and what it means for the man and woman in the street.
From an immediate practical standpoint, what other steps need to be taken? We have to implement all the legislation that has already been agreed - the BRRD and the DGS in particular. We have been pressing all Member States to act, and we are getting there – but we still have three countries who have not yet got over the line.
We also need to finish some level 2 legislation to bring the BRRD and other rules fully into effect. And make sure that in the coming months our proposals on TLAC fit intelligently with MREL.
We also need to ensure that we can deal not just with a national or European bank but a global one. So we have to continue to work on cross-border cooperation – between the Banking Union and the rest of the EU of course. But also between the EU and the rest of the world so that we can cope with a situation where a global bank gets into difficulty.
There are other issues which need attention. As Martin Gruenberg reminded us last week, the FDIC has benefitted from the close relationship in the American system between supervision, deposit insurance, and resolution. Our work in the EU on that front is not finished.
We came forward with a proposal to put in place a European Deposit Insurance Scheme, EDIS, by 2024 as part of a broader plan to deepen Economic and Monetary Union. It aims to give the Banking Union the third leg that was always intended, alongside the single supervisor and the single resolution mechanism.
The plan with EDIS is to move from a single system of deposit guarantee schemes to a scheme that will underwrite deposits across the whole Banking Union. Depositors already have the confidence of knowing that their deposits are guaranteed up to €100,000 if their bank goes bust. EDIS is a Banking Union wide scheme that would make banks better protected if there were larger local shocks.
The idea is to build it up gradually, until it's fully mutualised by 2024. It should be cost neutral for the banks because contributions to EDIS would be deducted from what banks pay into their national DGS. And there would be strong safeguards against moral hazard.
EDIS is part of a balanced package where steps to share risk and reduce it go hand in hand. We discussed it again last week at the informal ECOFIN in Amsterdam and I am very grateful to the Dutch Presidency for the strong lead they are giving.
We also need to provide a credible long term backstop for the single resolution mechanism. Ministers committed to this back in 2013. They agreed they would work out a new system so that it was operational by 2024. Since the start of the year, we now have bridge financing arrangements in place for the transitional period but it's important that we start the technical work to develop the common backstop. Again, we come back to the issue of trust. I was also glad to hear in Amsterdam wide support for this work to commence as soon as all countries have fully implemented the BRRD.
We should not underestimate how challenging it is to move from bail-out to bail-in. The coming months and years won't always be easy but I know that we are all committed to make the new set-up work.
We know that we have to continue to strengthen the Banking Union. We'll keep up the momentum behind EDIS; maintain depositor confidence through better integrated deposit guarantee and resolution functions; and drive forward measures to reduce risk.
But as we think about the challenges that lie ahead, let's not forget how much has already been done. Today, Europe’s banks are stronger and better capitalised. The quality of the assets they hold has improved and - despite low interest rates – deposits have increased. EU banks' capital ratios now stand at 12%, a similar level to those of the United States. Investor confidence has improved. And the EBA’s upcoming stress tests will give us another up to date assessment of how Europe’s banking sector is doing.
We need a strong and competitive banking sector to help power growth, investment and jobs in Europe. The SRB has a vital part to play in strengthening the Banking Union. That's another reason why I wish you all a successful and productive day.
