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Mr. President [M. Draghi], Ms. Chair [D. Nouy],
Bonjour et bienvenue à Paris,
It is a particular pleasure to welcome you to this conference on financial supervision and the role of national authorities in Europe. What better way to inaugurate the new headquarters of the ACPR – France’s supervision authority – than to bring in colleagues and experts from across the continent. I urge you to look at a few street names in the neighbourhood: this borough is called in Paris “quartier de l’Europe” – very much in the spirit of what we are doing together at the SSM.
I warmly thank President Mario Draghi for being here. Before giving him the floor, let me stress that we all have reasons to be proud of what has been achieved for Banking Union in the past few years. But we must not be complacent. There are two priorities: one in substance, and one in method.
Now that we’ve had the Single Supervisory Mechanism up and running for four years, it’s easy to forget that there were many sceptics who were sure that such a union could not be achieved. But, as Mark Twain would have said, “[we] didn’t know it was impossible so [we] did it.” Today it is a tangible reality. In fact our supervisory practices have been harmonised upwards. Our legal framework is stronger thanks to the single rulebook. And European banks are sounder – the CET1 solvency ratio for major institutions has increased by more than 3 points since 2014 (from 11.3% to 14.6% at the end of last year). Danièle [Nouy], you deserve our congratulations on this achievement!
Yet Banking Union’s second pillar, the Single Resolution Mechanism (SRM), is still incomplete. Yes we have already managed our first cases, substantially improving the health of a number of banks, notably in Spain and Italy. But making the SRM fully operational should be our top priority.
In my opinion, it is the common backstop to the Single Resolution Fund that is really the key. Experience from abroad is instructive: in most large jurisdictions, in particular the United States and the United Kingdom, the intervention capabilities of resolution funds are backstopped by the fiscal authorities. And they are not a burden on public finances, since any public outlays are generally reimbursed by the private sector. The euro area agreement on the backstop reached on the 29th of June is a crucial first step. It is now urgent to deliver on it by the end of 2018. Two key issues remain: how to fund the backstop at a sufficiently high level to be credible, and how to create a swift decision-making process to deal with emergencies – if we need weeks, it is useless. The euro area also needs a system for providing liquidity to financially sound banks after resolution – one that is provided by the Eurosystem and secured by a high-quality public guarantee.
I’m fully convinced that once we have a credible and efficient mechanism for resolution, it will be much easier to reach a pragmatic compromise on deposit insurance, probably with a focus on liquidity sharing between national guarantee schemes.
Let me add two thoughts on substance:
Let me come back to the SSM. After only four years of existence, it is now fully operational, with more than 2,300 supervisory decisions in 2017 alone. Those of you who work within the SSM are the living breathing reality of European integration. Every day you prove that closer cooperation, closer union is not a dream of the past but something we are still capable of today.
Part of the SSM’s success stems from its design: the mechanism constitutes an original model of federalism, based on a close and continuous collaboration between the ECB and national authorities at all levels: from the composition of the Supervisory Board to the Joint Supervisory Teams (JSTs), the on-site teams and staff secondments.
This does not mean that all is rosy and that culture and practices have fully converged within the SSM. Success allows us to consider now how the day-to-day functioning of the SSM can still be improved. In my view, there are three main strategic priorities:
Strong cooperation between national authorities and the ECB is needed in banking supervision, but not exclusively. Let’s not forget that a majority of national authorities are competent in other fields of supervision, which matter for the SSM, such as insurance – which is the case for the ACPR. These competences are valuable not only for the supervision of financial conglomerates but also for the development of a more unified single market for insurance. In cooperation with EIOPA, we are committed to preserving it after Brexit.
Let me conclude. Ten years after the collapse of Lehman Brothers, we have learnt three main lessons. First, we need competent, strong and independent supervision. Second, we need a level playing field, at least in Europe, and if possible at the international level, for the implementation of the strengthened rules: without demanding supervision, regulation and the single rulebook could largely remain a paper exercise. Last but not least, we must never let our guard down when it comes to financial stability. Anniversaries have to be a bastion against the temptation to forget and fall asleep. The SSM is the fruit of all these lessons… and, under your responsibility, the best guarantee for the future. Thank you for your attention.