Retail Bakig i Europe The Way Forward The Europea Voice of Savigs ad Retail Bakig
Retail Bakig i Europe The Way Forward Cover cocept: The diverse ladscape of bakig drives the ecoomy forward.
Ackowledgemets ESBG would like to thak its members who cotributed to this report. We would also like thak the colleagues of the cosulted ESBG committees ad other ESBG workig bodies for their iput: Coordiatio Committee Ecoomic Affairs Committee Paymets Committee Supervisio ad Capital Requiremets Committee Accoutig ad Audit Committee Corporate Social Resposibility Committee Fiacial Regulatio Committee Task Force Capital Markets Regulatio Task Force Cosumer Policy Task Force SMEs Task Force o Ati-Moey Lauderig ad Couter Terrorist Fiacig Statisticias Network Disclaimer The opiios ad views expressed i this report do ot ecessarily reflect the idividual views of all ESBG Members; they are the result of a cosultatio process ivolvig ESBG committees ad other ESBG workig bodies. Give curret ogoig discussios with the Europea Commissio, Lloyds TSB believes that it is ot appropriate for it to commet publicly o Europea regulatory issues for the time beig, ad is therefore ot a party to this report.
FOREWORD These are iterestig ad ucertai times, ad we caot tell yet where they will lead us. The fiacial world is chagig ad it is to be expected that bakig itself whether globally or i the EU will udergo a sigificat trasformatio. Now is ot the time for cocrete predictios, yet we look ahead with optimism ad with the cofidece that also i the times to come, Europe s savigs ad regioally orieted retail baks will drive ecoomic growth ad developmet, as ideed they always have. The aim of this report is to work towards this goal by stimulatig ad cotributig to the various relevat debates ad iitiatives, which are curretly shapig the retail bakig sector alog various dimesios. Firstly, fervet discussios are ogoig i the cotext of the fiacial ad ecoomic crisis. At the cetre of these debates stads improvig the regulatio of Europe s fiacial sector i all those areas where regulatory shortcomigs are ow recogised as havig cotributed to or as ot havig effectively preveted the build-up to the crisis. For the same reasos, Europe s supervisory architecture is curretly uder revisio. I parallel, however, it would be of similar importace to exted the ogoig political discussios to Europe s fiacial players themselves ad to reassess the priorities of baks as regards their role i the ecoomy. The evets of the last two years prove that, i Europe ad also i the US, such a discussio o bak priorities is log overdue. As represetatives of savigs baks ad regioally orieted retail baks we feel that it is our role to stimulate such a debate, sice durig the last two years these busiess models have udoubtedly recofirmed their validity. Secodly, the debate o the log-ru itegratio of Europe s bakig sector ad the achievability of a Sigle Market for retail fiacial services cotiues. This debate o the growig together of Europe s atioal retail bakig markets ad o the ecoomic aspects of market itegratio is of greatest importace for the sector ad for Europe. As a matter of fact, the curret supervisory ad regulatory revisios will reset some of the uderlyig coditios for this debate, i ways which caot yet be aticipated. However, there are persistig cetral factors that determie the buildig blocks for ay soud ad reality-based visio or strategy for the future of Europe s retail fiacial services markets. As savigs baks are amog the oldest ad most deeply embedded providers of retail fiacial services, we feel compelled to poit out certai core parameters which are fudametal for ay realistic debate o retail bakig sector itegratio. Thirdly, i the field of retail bakig policy, cotiuous efforts are beig udertake to drive forward the itegratio of Europe s retail fiacial markets i practice. This applies to areas like the core retail bakig busiess, paymets, capital markets, fiacial iclusio ad educatio, ad accoutig. Eve with the ogoig crisis, i these areas a large part of the dialogue betwee policy makers ad idustry is i fact busiess as usual. Cosequetly, we use the occasio of this report to provide our recommedatios for the retail bakig specific policy areas curretly o regulators ageda, ad take this opportuity to preset ESBG s expertise ad views as the represetative of a major part of Europe s retail bakig idustry. Without aticipatig our cocrete coclusios ad recommedatios, let us already highlight that ESBG remais true to its logstadig positios ad covictios. For both baks ad bakig regulators, a reality based approach is essetial. For baks this reality based approach implies the eed for resposible ad sustaiable busiess models; for policy makers it meas recogisig ad respectig busiess realities ad fudametal market coditios. Furthermore it goes had i had with iteralisig ad maximisig the value of Europe s pluralistic bakig sector, ot oly for the sake of Europe s baks but eve more so for the sake of its citizes, regios ad the ecoomy as a whole. The clear ad objective goal of Europe is to make the most of its stregths. 5
With this isight, of course, the questios do ot ed. Rather, as a result of the curret crisis, ew questios arise, while already established aswers to old questios are beig revised. Cetral amog the ew questios is whether the curret ecoomic slow-dow will lead to a chage i the pace ad directio of the itegratio debate. Lookig back, durig the past period of ecoomic growth ad prosperity util the oset of the crisis i mid-2007, the approach to Europea market itegratio take by most EU policy makers was very ambitious ad dyamic eve bullish but ufortuately ot ubiased. However, durig the last two years of fiacial ad ecoomic crisis ad the experiece of fragilities i the fiacial system, esurig stable atioal fiacial sectors ad ecoomies clearly has take priority. Does it follow from this that dire ecoomic circumstaces reveal the real costraits to sector itegratio which previously were overlooked or ot bidig? Do the experieces of the last two years redirect market players themselves towards their home-markets or chage their approach to market-etry ad expasio? Is sector itegratio, i the way previously uderstood ad targeted by policy makers ad market players, o loger a priority? Will market players ad policy makers stace o itegratio tur bearish ad, if yes, for how log? Lookig at the evolutio of ew aswers for old questios, a chage is clearly observable i policy makers visios ad priorities for the future of the Europea retail bakig market. Util two years ago, the debate was domiated by the cetral objective of itegratio, defied as the removal of barriers to the creatio of ever bigger baks. Now this approach is beig couterbalaced by the recogitio that fiacial stability caot be take for grated. At the same time, there are the ew additioal priorities of promotig fiacial iclusio, icreasig cosumer cofidece, ad achievig resposible busiess practices. It ca therefore be expected that regulators ad policy makers will adopt much more so tha they did i the past holistic ad balaced strategies o the basis of all these criteria. As a result, the very ature of the itegratio debate is likely to chage ad to become, ideed, more pluralistic. For us as savigs ad retail bakers this chage i the political tred comes as a great cofirmatio. Europe s savigs baks ad regioally orieted retail baks have always bee critical towards a oe-sided approach to itegratio: it either iteralised the stabilisig impact of Europe s pluralistic bakig ladscape ad its beeficial effects for competitio, or did it take sufficiet accout of the socioecoomic role of baks ad the ecessity of guarateeig fiacial stability. The evets of the last two years have clearly demostrated that Europe eeds a pluralistic bakig sector as well as a circumspect ad balaced approach by policy makers. For all these reasos the ew directio i the itegratio debate appears promisig ad could esure that the beefits of a itegrated Europea fiacial market will be more equally distributed. Furthermore, there is reaso to hope that itegratio will become ot oly fairer, but also safer. It is evidet that the Europea debate o retail bakig itegratio is early as diverse, dyamic ad multidimesioal as the retail bakig sector itself. Both bakers ad policy makers are learig ecessary lessos. By buildig o realistic foudatios, Europe ad its baks will move forward carefully, but also with cofidece. Heirich Haasis ESBG Presidet Chris De Noose Maagig Director WSBI/ESBG 6
TABLE OF CONTENT Foreword 5 Executive Summary 9 Who is ESBG? 17 1. ESBG The Europea voice of savigs ad retail bakig: idetity, values ad traditio 17 2. ESBG members i the Europea bakig ladscape 17 2.1. ESBG members itegrated withi the Europea bakig sector 18 2.2. ESBG members a substatial part of the Europea bakig sector 18 3. ESBG ad resposible bakig 19 Part 1 The fiacial ad ecoomic crisis: ESBG key-messages ad cotributios 23 Settig the scee: the curret fiacial ad ecoomic crisis a uprecedeted experiece 25 1. Crisis, baks ad ecoomy ESBG views o ledig, busiess ethics ad state aid 27 1.1. Retail bakig ad the real ecoomy bak ledig durig the crisis 28 1.2. Views o baks revisited back to the roots of the busiess? 31 1.3. State support to the baks ad related trade-offs which approach should be take? 33 2. Policy resposes at the EU Level ESBG views o the chose approaches 37 2.1. EU actios as part of the global approach to crisis prevetio revisio of existig regulatory ad supervisory frameworks 38 2.2. EU actios as part of the global approach to crisis prevetio wideig regulatory outreach 40 Part 2 Europea retail bakig market itegratio: core parameters for a reality-based approach 43 Settig the scee: the log-ru debate o the itegratio of Europe s retail bakig markets 45 1. Retail bakig realities ad their implicatios for market itegratio 47 1.1. Local demad for retail bakig products ad services 48 1.2. Distributio of retail bakig products: does retail bakig become less local? 51 1.3. Competitio i retail bakig 54 2. Diversity: heritage ad future for the Europea retail bakig market 59 2.1. Bakig practices: EU comparisos EU diversity 60 2.2. Europe rich i market players 63 2.3. Pluralism i the EU retail bakig market 65 7
Part 3 EU retail bakig policy: ESBG cotributios ad recommedatios 69 Settig the scee: the EU approach to fiacial sector policy ad ESBG s cotributios o the basis of the Market Model 71 1. Bakig supervisio 73 1.1. The EU istitutioal arragemets for supervisio 74 1.2. The EU regulatory framework 80 1.3. Deposit Guaratee Schemes 87 2. Fiacial reportig I Fair value accoutig 91 3. Fiacial reportig II - IFRS ad SMEs 97 4. Wholesale paymets ad settlemets ifrastructure 103 5. Capital Markets I Securities 109 5.1. Markets i Fiacial Istrumets Directive (MiFID) 109 5.2. Prospectus Directive 114 5.3. Market Abuse Directive 116 5.4. Trasparecy Directive 117 6. Capital Markets II Asset maagemet ad ivestmet fuds 119 6.1. UCITS 119 6.2. Alterative ivestmet fud maagers 121 6.3. Packaged retail ivestmet products 122 7. Cosumer policy i the area of retail fiacial services 125 7.1. Cosumer credit 127 7.2. Mortgage credit 129 7.3. Distace marketig of cosumer fiacial services 133 7.4. Cosumer redress 135 7.5. Europea cotract law 137 7.6. Cosumer rights 139 8. Retail paymets 141 9. Ati-moey lauderig, couter terrorist fiacig ad fiacial istitutios 151 9.1. The third ati-moey lauderig directive 152 9.2. Compliace at group level 155 9.3. Fiacial actio task force FATF 156 9.4. Proliferatio fiacig 158 9.5. Fiacial sactios 160 10. SME fiacig 163 11. Fiacial iclusio 171 12. Fiacial educatio 175 Cocludig remarks 179 Aex 1 181 Part 1 Structural ad fiacial data 181 Part 2 EU Paymets Data 197 Aex 2 203 ESBG Charter for Resposible Busiess 203 Bibliography 213 8
EXECUTIVE SUMMARY Who is ESBG? ESBG is the voice of Europe s savigs ad regioally orieted retail baks. ESBG s members share a log Europea bakig traditio ad form a itegral ad substatial part of Europe s retail bakig ladscape. True to their origis, they subscribe to the priciples of resposible retail bakig, as summarised i the ESBG Charter for Resposible Busiess. The ogoig fiacial ad ecoomic crisis challeges may log held views o the fiacial sector itself ad o the appropriate regulatory ad supervisory framework. At the same time, the log-lastig EU debate o fiacial sector itegratio cotiues at both the political ad the policy level. As the Europea voice of savigs ad regioally orieted retail baks, ESBG is takig this opportuity to preset its cotributios o the differet retail bakig related issues to the ew Europea Parliamet ad the ew Europea Commissio. This report lays out ESBG s views ad recommedatios i three broad areas. The first part of the report addresses the curret fiacial crisis ad presets ESBG s key messages ad cotributios to ogoig political debates. The secod part of the report takes a log term view ad ames ad explais core parameters for retail bakig sector itegratio, which are essetial for ay reality-based strategy for the future of Europe s retail bakig sector. The third part of the report addresses cocrete retail bakig policy issues ad presets ESBG s views ad recommedatios i relevat areas. PART 1 The fiacial ad ecoomic crisis: ESBG key-messages ad cotributios The curret fiacial crisis sheds a ew light o Europe s bakig sector ad has challeged atioal govermets to take uprecedeted actio. Similarly, the crisis calls for steps i the areas of bakig supervisio ad fiacial sector regulatio. Crisis, baks ad ecoomy ESBG views o ledig, busiess ethics ad state aid Maitaiig access to credit for the real ecoomy is essetial. Fears of a severe Europe-wide credit cruch ad a break-dow i bak ledig to the real ecoomy have ot materialized. This is largely due to the stabilizig ad balacig characteristics of Europe s bakig sector, ad i particular to its pluralistic structure i which differet bak types ad busiess models compete ad coexist. By cotributig to the overall stability of the fiacial system, pluralism i the bakig sector truly cofirms its value for Europe s ecoomy ad markets. I the retail bakig area, may ESBG members have maitaied or eve icreased ledig to the real ecoomy sice the oset of the crisis. This uderlies the stabilisig effect of regioally active ad committed retail baks ad the importace of locally made bakig decisios for adequate ad stable fiacig of the local ecoomy. 9
The crisis demostrates that fudametal mismatches betwee the bakig sector ad the real ecoomy are ot sustaiable. The suddely exposed fragility of the fiacial system demostrates that the priorities of baks eed to be aliged with their true purpose i the ecoomy. This fudametal idea is embodied i the traditioal savigs baks model. O a geeral level, bakig eeds to retur to a realistic ad soud approach, which does ot lie i a race for fast but usustaiable profits. For retail bakig this implies a clear focus o the efficiet, coscietious ad resposible provisio of fiacial services ad products to the real ecoomy. Correspodigly, a uiform bakig sector whose behaviour imperils the wider ecoomy ca o loger be a acceptable visio for policy makers or for some parts of the bakig sector. It is the duty ad resposibility of policy makers to safeguard a pluralistic sector i which the priciples of comprehesiveess, resposibility ad sustaiability are well represeted. The crisis has led to a wave of state aid to fiacial istitutios. The efforts of Europea Commissio ad atioal govermets to support fiacial istitutios ad to guaratee fiacial stability are importat, ecessary ad adequate. Still, a cetral criterio is that state-aid must be grated with the clear objective to achieve or maitai the overall health of the bakig sector it may ot carry a cost to soud ad healthy istitutios. Ay state aid measure must be desiged i order to fit with the atioal circumstaces ad eeds to be adaptable to the challeges idividual istitutios are facig. Yet there remais some cocer that atioal state-aid measures ca traslate ito persistet competitive imbalaces both across markets ad withi markets. Therefore policy makers eed to exert all efforts to prevet state aid from affectig competitio betwee beeficiaries ad o-recipiets. This is also importat as it is urealistic to expect that competitio distortios ad damages to the soud parts of the bakig sector ca be repaired at leisure after the crisis is overcome. Challeges to Europe s regulators ad supervisors The curret fiacial crisis also challeges Europe s policy makers to idetify ad correct shortcomigs of the EU regulatory ad supervisory framework. The aalysis of the reasos ad dyamics behid the curret fiacial markets crisis has bee progressig with great strides. EU policy makers have ot hesitated to act o the lessos leared ad to iitiate correctios i those areas where they have idetified the eed ad scope for correctios. While the ogoig approach tackles a rather wide rage of policy objectives, the paramout goal of legislative iitiatives is to safeguard future fiacial stability. Lookig at the iitiatives uder way it is importat to ote that, while great efforts are beig take to improve existig legislatio ad istitutioal frameworks, a substatial part of the discussio also focuses o extedig regulatory coverage to previously uregulated etities ad activities. Lookig at the ogoig revisios of the EU supervisory ad regulatory framework, EU policy makers rightly aim to build o existig foudatios ad make the best use of past achievemets. ESBG would like to stress that i order to adequately take accout of the iterlikages betwee the differet areas uder the spot light, a holistic approach is vital. It is also importat that EU policy makers keep the ambitio to regulate Europe s fiacial sectors i a way which promotes its stregths ad takes due cosideratio of the diversity of its fiacial sector. The applicatio of commo rules uder the guidace of a overarchig proportioality priciple would cotribute to safeguardig the valuable diversity i EU s bakig markets. Yet some words of cautio are ecessary. The temptatio of short-termism must be resisted ot oly by fiacial itermediaries, but also by regulators ad policy makers. A clear distictio eeds to be maitaied betwee measures addressig immediate cocers ad log-term improvemets to the regulatory framework. The implemetatio of corrective measures eeds to be carefully adjusted to the real ecoomic eviromet ad to the pace at which the Europea ecoomy overcomes the curret crisis. The curret political mometum should ot be lost, yet udue haste may ultimately prove couterproductive. The curret expasio of regulatio to previously uregulated fiacial actors ad activities is a timely ad ecessary respose to the lessos Europe ad the world have bee forced to lear i the last two years. Policy makers are rightly extedig regulatio to those formerly uregulated fiacial market participats whose actios have cotributed sigificatly to the crisis or whose activities could pose future systemic risks to fiacial market stability. Especially the EU regulatio of credit ratig agecies is log overdue, give their fudametal role i the fiacial sector ad the potetial implicatios for fiacial stability. 10
PART 2 Europea retail bakig market itegratio: core parameters for a reality-based approach The curret fiacial crisis ad the aalysis of ecessary lessos ad resposes may domiate the curret political ageda. Yet, the log-ru EU debate o a further itegratio of the retail bakig sector is ogoig. I the secod part of the report, ESBG presets core-parameters for a reality-based Europea approach. Retail bakig realities ad their implicatios for market itegratio Of key importace for ay approach to sector itegratio is that retail bakig is a local busiess: Demad for retail bakig is local ad the busiess itself builds o persoal cotact betwee baks ad customers (relatioship bakig). With regard to SMEs the local dimesio of retail bakig is eve more crucial, sice a adequate bak-customer relatioship builds o detailed kowledge of the SME ad its busiess eviromet. Cosequetly, brach etworks are essetial for comprehesive retail bakig. Olie bakig facilities are becomig icreasigly wide-spread; they complemet, but do ot reduce, the importace of proximity. Not oly does the local character of retail bakig set the rules for baks busiess strategies, competitio ad market etry, also the fiacial iclusio of Europe s regios builds o full coverage of brach etworks. For the further itegratio of Europe s retail bakig markets the importace of proximity meas that successful etry ito ew markets requires substatial ivestmets i brach etworks ad i local kowledge. This is especially true sice the essetial factor for baks success is customer satisfactio. Pure cross-border provisio of retail fiacial services o a large scale is a urealistic propositio due to lack of demad ad lack of suitability for the busiess at had. For these same reasos, distace marketig techiques for example direct bakig caot substitute physical bak braches. Lookig at the atural costraits of the direct bakig busiess model (with its ear exclusive reliace o the iteret as a basis for cotact with customers), it becomes apparet that its ecoomic beefits ca be dubious especially i a cross-border cotext. It either promises comprehesive coverage i terms of retail bakig services, or is it certai that the cosumers deposits are optimally used to fud ecoomic actitvity. Ay coscietious assessmet for the scope for more sector itegratio eeds to take ito accout that retail bakig competitio is multi-dimesioal. A vital part of competitio goes beyod prices (fees ad iterest rates) ad works via customer satisfactio ad trust, depth of service, ad regioal coverage. Therefore customer choice is always a trade-off betwee hard factors ad soft factors, which i tur may be reflected i prices. For itegratio this meas that ay market etrat has to compete ot oly i terms of prices, but also to meet a rage of wider criteria demaded by customers. Furthermore, at the atioal level, Europe s bakig markets are already characterized by high levels of competitio. Sice retail bakig is local, this traslates ito itese competitio at the EU level. Diversity i retail bakig ad sector itegratio Lookig at bakig practices, sector structures ad market participats, the diversity ad pluralism of the EU retail bakig sector is strikig. This richess i retail bakig practices ad the pluralism of market players are the results of differet bakig traditios ad the adaptatio to differet ecoomic eviromets. The differeces i demad for retail fiacial services all over Europe are to a large extet a result of differeces i cultural ad socioecoomic factors, savigs cultures, housig ad labour market specifities ad govermet policies. Differeces i bakig practices, i product desig or pricig patters cosequetly stem from a adaptatio to specific features of demad ad uderlyig coditios. Similarly, i each coutry the structure of the fiacial sector reflects the eeds of the producig sector ad citizes, ad therefore the structure of the ecoomy itself. As a logical cosequece sector structures vary accordigly across Europe. ESBG has always emphasized that pluralism i the retail bakig sector is a asset for Europe: it beefits the real ecoomy, drives competitio ad icreases fiacial stability. Pluralism esures that the Europea bakig sector is more tha the sum of its parts. As regards the itegratio of Europe s retail bakig market, it is therefore essetial for Europe to make the most of its stregths ad to develop a itegratio strategy which respects ad appreciates the diversity of market players. 11
PART 3 EU retail bakig policy: ESBG cotributios ad recommedatios Part 3 of this report presets ESBG s views ad recommedatios o the retail bakig related policy issues curretly uder debate. Bakig supervisio The EU debate o bakig supervisio has gaied mometum with the outbreak of the fiacial crisis. The recet market evets have, however, ot chaged ESBG s belief that reforms i this area have to build o the stregths of the curret framework such as the strog ivolvemet of the atioal supervisory authorities. Lookig at the chages curretly evisaged, ESBG supports the combied focus o micro ad macro prudetial supervisio. Of particular importace is the ew focus o macro-prudetial aspects of fiacial stability. Here, the mai challege will be to esure that the future EU macro-prudetial body o fiacial stability will effectively ad efficietly carry out its tasks. Turig to micro prudetial supervisio, ESBG geerally supports the establishmet of a Europea System of Fiacial Supervisors, which will be a decetralized etwork of atioal supervisors with coordiatig roles for the evisaged three ew Europea Supervisory Authorities. The fiacial crisis has also revealed weakesses i the curret prudetial regulatory framework. Yet, this does ot mea that it is ecessary to completely overhaul the rules i place. EU policy makers should correct the idetified weakesses by buildig o the Basel II framework. As regards the process to be followed, repairs to the regulatory framework should observe the Better Regulatio approach. I additio, the timig for the itroductio of ew rules is importat, as measures which would have positive effects i the log ru could prove couterproductive if itroduced i the curret exceptioal market coditios. ESBG supports the efforts to esure the appropriateess of rules i areas such as securitizatio or baks tradig book. At the same time, it has to be esured that the ew rules evisaged are a true respose to the idetified problems ad do ot edager practices that have prove their effectiveess from a market stability or risk maagemet perspective. ESBG welcomes the recetly adopted revised versio of the Deposit Guaratee Schemes Directive, which reflects the importace of Deposit Guaratee Schemes for stability i fiacial markets ad cosumer cofidece. As regards the additioal chages to the Directive curretly evisaged, the differet atioal Deposit Guaratee Schemes should be maitaied, as they have the importat advatage of attributig local resposibility ad social cotrol. Fially, o further reductio of the payout delay, which would come o top of the reductios itroduced by the revised DGS, would be maageable. Fiacial reportig I Fair-value accoutig I its 1999 Fiacial Services Actio Pla, the Europea Commissio aouced its itetio to improve the Sigle Market for fiacial services. Oe of the objectives was to obtai a sigle set of accoutig stadards for all Europea listed compaies that was better adapted to the icreased use of fiacial istrumets. The stadards chose were the Iteratioal Fiacial Reportig Stadards (IFRS)/Iteratioal Accoutig Stadards (IAS) which itroduced the accoutig otio of fair value. Fair value chaged the philosophy of atioal accoutig stadards as it itroduced the idea that assets ad liabilities had to be re-evaluated o a regular basis accordig to their curret market value. Fair value ecoutered a lot of attetio from both sides of the Atlatic i light of the fiacial crisis. Durig autum 2008, umerous chages i the stadards related to the valuatio of fiacial istrumets at fair value (mostly cocerig the accoutig stadard called IAS 39) were itroduced. All of these chages aimed to provide flexibility i the applicatio of fair value especially cocerig the measure of fiacial istrumets i illiquid markets. I early summer 2009, proposals were issued to replace fair value guidace cotaied i various IFRS with a sigle, uified defiitio of fair value, soo followed by a proposal to replace IAS 39 by a ew stadard. The ogoig discussios cocer the pro-cyclicality effect of fair value, the valuatio of illiquid assets ad the fair value classificatio rules i balace sheets. 12
ESBG strogly supports a more flexible applicatio of fair value whe it comes to illiquid fiacial istrumets but also defeds a practical approach to the relatioship betwee fair value accoutig ad the ecoomic dowtur. Over-reliace o market value ot oly sigificatly icreases pro-cyclicality, but also results i providig a iaccurate image of a compay s fiacial situatio. There is a eed for more user friedly, simpler ad more stadardised rules of fair value disclosures ad calculatio requiremets. More coherece betwee America ad Europea accoutig stadards is ecessary. Additioally, a higher degree of harmoisatio betwee fair value requiremets is demaded by fiacial reports ad those required by supervisory regulatios. Better trasparecy would beefit both users ad preparers of fiacial stadards as it will dimiish their workload ad stregthe the Europea Sigle Market. Fially, it is very importat for the EU to adopt measures o fair value that take the exceptioal circumstaces i the markets ito accout ad are i lie with the measures take i the Uited States. Thorough recosideratio of the existig accoutig practices ad accoutig rules is ecessary i the log term. Fiacial reportig II IFRS ad SMEs Small ad Medium-sized Eterprises (SMEs) form the backboe of the Europea ecoomy ad savigs baks are their atural busiess parters. I order to improve the Sigle Market, the Europea Commissio has proposed adaptig accoutig requiremets for SMEs ad for publicly traded compaies. The Commissio s iitiatives iclude a reductio of the reportig burde for SMEs ad the edorsemet of a commo set of accoutig rules for listed compaies the Iteratioal Fiacial Reportig Stadards (IFRS). The Iteratioal Accoutig Stadards Board (IASB) took the iitiative to propose a extesio ad a simplificatio of IFRS accoutig rules for SMEs. This iitiative raised cotroversial discussios amogst stakeholders ad policy makers ivolved. I geeral, savigs baks do ot have ay strog preferece o the accoutig stadards that their SME cliets apply. More specifically, ESBG members ca adapt to the accoutig stadard used by SMEs, be it a atioal Geeral Accepted Accoutig Priciple or o a iteratioal accoutig stadard specifically desiged for SMEs. Therefore, ESBG s major iterest is to esure that SMEs beefit from the best possible accoutig stadards both i terms of simplicity ad comprehesibility. Agaist this backgroud, the IFRS for SMEs should be a optio. I additio, substatial reductios of disclosure requiremets are still ecessary. With regard to the IASB proposal to revise the stadards every three years, the time frame for modificatios ad further developmets of the stadards should be exteded i order to avoid additioal admiistrative burde for SMEs. Cocerig the cotet of the IFRS for SMEs, ESBG, beig the atural busiess parters of SMEs, defeds a practical, cash-flow ad solvecy orieted approach. Fially, the scope of etities obliged to report i accordace with full IFRS should ot be expaded to iclude baks ad isurace compaies as beig publicly accoutable etities uless they are capital-market orieted. Wholesale paymets ad settlemets ifrastructure Cocerig wholesale paymets ad settlemet ifrastructure, ESBG supports the cotiued developmet of cetral bak ifrastructure that effectively eables fiality ad certaity. Yet the public good dimesio of these iitiatives should ot be lost from sight, as this is oe of the core factors which distiguish them from commercial iitiatives. As a cosequece, particular care should be paid to esurig that the level playig field is ot eve iadvertetly jeopardized, for example by costraits that make direct access to paymet ad settlemet systems uattractive. Capital markets The Fiacial Services Actio Pla (FSAP) has itroduced substatial chages to the rules i place to esure the safety, itegrity ad accessibility of Europe s fiacial markets. Importat pieces of legislatio iclude MiFID, the Prospectuses Directive, the Market Abuse Directive ad the Trasparecy Directive. After a phase of adoptio ad implemetatio, the time has ow come to review these texts: the best should be made out of this opportuity to correct errors ad assess the effects of the measures i place. 13
It is still premature to draw fial coclusios o the Markets i Fiacial Istrumets Directive (MiFID). This beig said, ad also due to the heavy cost associated with compliace, a period of cotiuity ad cotemplatio is ow ecessary so that the full effects of MiFID ca ufold ad be assessed. This is the case ot oly for the coduct of busiess related aspects of MiFID, but also for all the provisios which will udoubtedly sigificatly chage the shape ad structure of Europe s fiacial markets. A subsequet ad realistic assessmet of MiFID should ot oly aim at idetifyig weakesses ad reducig ay excess burde; it also should hoestly take stock as to whether MiFID equally beefited all market participats ad whether the priciples of subsidiarity ad proportioality were fully respected. The Prospectus Directive has already demostrated its viability ad has brought about some improvemets. Therefore, its upcomig revisio should focus o further reducig burde, also takig due accout of the retail bakig realities ad of the specificities of smaller baks. This would imply raisig the size-threshold for the exemptio of smaller credit istitutios, give the substatial burde associated with providig a prospectus. As regards the recet developmets relatig to asset maagemet ad ivestmet fuds, ESBG welcomes UCITS IV, which beefits ivestors ad further improves the iteral market for collective ivestmet i trasferable securities. Lookig ahead, it is of great importace to preserve the spirit of UCITS as safe products for retail ivestors. ESBG supports the decisio to iitiate regulatio of Alterative Ivestmet Fuds. Yet ESBG is cocered about a umber of vague elemets i the Commissio s proposal for a Directive, which is curretly beig assessed. Furthermore, ESBG welcomes the ogoig iitiative to explore how a framework for all packaged retail ivestmet products could work i practice, aticipatig already that i this area a flexible approach is ecessary give the diversity i existig products. Cosumer policy i the area of retail fiacial services I recet years, cosumer protectio has become oe of the corerstoes of Europea policy i retail fiacial services. The Europea Commissio aims to improve the relatioship betwee citizes ad fiacial market players, thereby icreasig cosumers cofidece i the Europea Sigle Market ad promotig a level playig field for competitio withi the fiacial sector. Yet the Commissio has cotiuously uderestimated cosumers reluctace to purchase fiacial products o a crossborder basis because they prefer the face-to-face commuicatio with their fiacial service providers. As regards the area of cosumer credit, the recet Cosumer Credit Directive aims at gratig cosumers with a appropriate degree of protectio. However, the Directive imposes additioal, uecessary admiistrative burdes o fiacial istitutios. Furthermore, the Directive causes ucertaities regardig topics such as overdrafts, pre-cotractual iformatio, the defiitio of the aual percetage rate of charge, early repaymet ad the right of withdrawal. Therefore, further clarificatios of these aspects i the Cosumer Credit Directive are ecessary. I the area of mortgage credit, ESBG welcomes the differet iitiatives of the Commissio to thoroughly assess possible future developmets i order to icrease the cross-border supply of mortgage credit. The most importat iitiatives beig take are, amog others, the revisio of Europea Stadardised Iformatio Sheet (ESIS), the study o the costs ad beefits of differet policy optios for mortgage, the study o lad registratio, property valuatio ad foreclosure procedures, credit histories ad the aouced package o resposible ledig ad borrowig. Geerally, ESBG welcomes the volutary self-bidig approach of the idustry to meet cosumers actual eeds ad otes that future madatory rules should ot aim at goig beyod those eeds. Agaist this backgroud, the package o resposible ledig ad borrowig should achieve a fair spread of resposibilities betwee cosumers ad ledig istitutios. Cocerig cosumer redress, ESBG supports the Commissio s iitiatives to reiforce the provisios of effective ad efficiet dispute resolutio ad redress mechaisms for cosumers. ESBG favours out-of-court settlemet procedures ad stresses the eed for the further assessmet of existig redress ad alterative dispute resolutio systems at the Member State level. I the cotext of Europea cotract law, ESBG supports i priciple the iitiative of a hadbook to achieve a coheret ad cosistet Europea legislative framework. Nevertheless, for a future Commo Frame of Referece a ope exchage of views as well as a appropriate impact assessmet are called for. Furthermore, there is cocer about the legal basis for the Commo Frame of Referece. 14
I geeral, ESBG supports the iitiatives of the Commissio to simplify ad to make Europea cosumer rights legislatio cosistet, but believes i the eed to strike the right balace betwee cosumer protectio ad the idustry s competitiveess ad therewith the fuctioig of the retail fiacial market. Retail paymets A strategically critical part of retail baks activities cocers paymets. Firstly, cocerig retail ad commercial paymets, ESBG observes that the Sigle Europea Paymets Area (SEPA) will to great extet be a product of political visio ad legislatio. Here, the curret approach to regulate a fuctio performed by market players (paymet accout, paymet services) rather tha market players themselves o the basis of their istitutioal status is a major ad still utested legislative iovatio. I cocrete terms, the success of SEPA, first ad foremost depeds o the adoptio of SEPA paymets istrumets by atioal authorities. Ultimately, however, the goal of the SEPA project must be to fulfill the iterests of those who are to become its beeficiaries, i.e. the retail customers. Ati-moey lauderig, couter terrorist fiacig ad fiacial istitutios I order to protect the global fiacial system from illicit fiacial activities ad to ehace the itegrity of fiacial markets, the prevetio of moey lauderig ad of the fiacig of terrorism is essetial. I Europe, the creatio of the Sigle Market provides advatages for busiess ad cosumers. It also icreases the opportuities for moey lauderig ad fiacial crime activities. Therefore, ESBG welcomes the Commissio s iitiatives i this area, such as the Third Ati-Moey Lauderig Directive. Oe of the cocers is the extet of the legal obligatio to idetify ad verify the idetity of a customer ad a beeficial ower which ca be difficult. Credit istitutios do ot have access to sufficiet ad reliable iformatio to carry out such a itesive idetificatio. Moreover, there is a eed for clearer guidelies o the extet of ivestigatio which baks eed to udergo i order to be cosidered compliat with the rules o beeficial owership. Aother related area is the fight agaist proliferatio fiacig i which ESBG members are very active. At the same time, the expectatios of what fiacial istitutios are able to cotribute i this fight must remai realistic. Fiacial istitutios ofte do ot have the isight ito the uderlyig busiess trasactio ad details required to pass a judgemet o the possibility of proliferatio fiacig as beig the uderlyig aim of the fiacial trasactio. I this respect, the red-flag idicators of the Fiacial Actios Task Force which serve to help idetify trasactios with a potetial proliferatio backgroud, are ot suitable. Thus, ESBG calls for describig characteristics i clear ad uambiguous terms, ot cotaiig elemets requirig further idividual assessmet. Durig the draftig process of the fiacial sactios, Europea regulators ad iteratioal orgaisatios should take the work of credit istitutios i practice more ito accout i order to esure a better ad effective implemetatio. Lookig ahead, ESBG welcomes effective regulatory iitiatives i the future ad will actively participate ad share the idustry s experieces i order to maitai realistic expectatios as to what fiacial istitutios are able to achieve i practice. SME fiacig ESBG members, traditioally atural busiess parters of SMEs, are amog the most importat providers of SME fiace ad importat parters to microeterprises. Therefore, ESBG i geeral welcomes the measures take by the Europea Commissio towards improvig the busiess eviromet for SMEs. However, there is still work to be doe i the area of admiistrative rules ad regulatios, access to fiace i the form of fiacial support programmes, microcredit ad ledig, cross-border activities, ad CSR for SMEs. I the cotext of the Small Busiess Act for Europe, ESBG agrees that the policies for SMEs eed to be coordiated at the EU level ad should be subject to the Thik Small First priciple i order to avoid excessive admiistrative burdes for SMEs. 15
Furthermore, the registratio procedure for settig up a SME, access to the Sigle Market, ad the ability to operate crossborder all eed to be ehaced for SMEs. Regardig the fiacig of SMEs, it is ecessary to brig coherece, to commuicate ad to clearly defie the aim ad target groups of differet existig Europea fiacial support programmes. With regards to the provisio of microcredit, the EU focus should primarily be o facilitatig microcredit at the atioal, regioal or local level as close to the cliet as possible. I ay case, support measures i favour of microcredit o the EU level, such as the JASMINE iitiative should be targeted to all itermediaries i order to reap the full beefits of microcredit i the form of growth ad job creatio. Fiacial iclusio ad fiacial educatio Servig the geeral iterest of society is the savigs baks iitial purpose ad a itegral part of their idetity. For a stable society, ecoomy, ad well-fuctioig fiacial system, it is ecessary ad desirable to have kowledgeable Europea citizes who are well-iformed i fiacial matters ad who have access to the fiacial system. Therefore, ESBG geerally welcomes the curret discussios o fiacial educatio ad fiacial iclusio at EU level. However, as promoters of fiacial iclusio for all citizes, ESBG strogly advocates for a strict applicatio of the priciple of subsidiarity ad for dealig with fiacial iclusio at the atioal level. This is also the case ivolvig access to a bak accout, which is oe of the most crucial parts of fiacial iclusio. Specific approaches tailored to differet atioal, regioal or eve local cotexts ad traditios are eeded where the problem of fiacial exclusio occurs. Fiacial istitutios should offer specific adapted products ad services, provide adequate iformatio ad fiacial educatio. However, iitiatives to foster fiacial iclusio ad ehace access to basic bakig services should always be take o a volutary basis ad caot be imposed o baks by regulatio. As a represetative of fiacial istitutios with a strog commitmet to Corporate Social Resposibility (CSR) esurig the empowermet of cosumers, ESBG cosiders that the fiacial educatio of citizes is a task to be dealt with at the atioal level. Stakeholders have a resposibility i fosterig fiacial educatio. Govermet ad public istitutios should provide policy orietatio ad raise awareess, while fiacial istitutios should be ivolved i creatig fiacial educatio programmes ad schemes. Here, may savigs baks play a key role i educatig people o fiace ad budget matters, far beyod their actual clietèle. These savigs baks have the ecessary kowledge ad expertise to share best practices. 16
WHO IS ESBG? 1. ESBG The Europea voice of savigs ad retail bakig: idetity, values ad traditio The Europea Savigs Baks Group (ESBG) is the voice of savigs ad regioally orieted retail baks i Europe. Together, ESBG members represet about oe third of the retail bakig sector i Europe with total assets of EUR 6,028 billio (as of 1 Jauary 2008). ESBG members are moder ad iovative providers of retail bakig services. They form a corerstoe of Europe s pluralistic bakig sector, which is distiguished by its diversity of bakig traditios ad busiess models. At the same time, ESBG members do ot form oe uiform block ad a proto-type savigs bak does ot exist. Rather the savigs baks uiverse itself is very diverse. This diversity reflects differeces ot oly i the evolutio of the savigs baks themselves, but also i the uderlyig ecoomic ad political coditios i their atioal markets. Overarchig this diversity, however, is a shared busiess approach ad shared values which costitute a strog commo deomiator. The strogest commo lik betwee ESBG members is their values. All baks ad istitutios represeted by ESBG stad for socially resposible bakig that brigs a retur to society. At the same time they are efficietly operated, competitive istitutios. I broad terms, ESBG members are characterized by what we call the three R : Retail: they are active i providig retail fiacial services for idividual cosumers, households, SMEs ad local authorities; Regioal: they are ofte orgaised i broad decetralised etworks providig local ad regioal outreach ad offer their services throughout their regio; Resposible: they have reivested resposibly i their regio for may decades ad are oe distict bechmark for corporate social resposibility activities throughout Europe ad the world. ESBG members iclude savigs baks, their descedats ad other retail baks that subscribe to similar values. Although their orgaizatioal structure differs from coutry to coutry, they have evolved from commo roots ad a traditio established i may parts of Europe i the 19th cetury. This traditio fostered a culture of savigs amog the poorer classes of the populatio so as to create some level of fiacial security i times of adversity ad old age. The savigs that were collected i this way were reivested i the local real ecoomy ad also used to fiace cultural ad social projects for the beefit of the commuity. This origial busiess philosophy cotiues to have a fudametal ifluece o the busiess approach of the savigs ad retail baks that make up the ESBG membership. 2. ESBG members i the Europea bakig ladscape As baks ad providers of retail fiacial services, ESBG members make up a large ad substatial compoet of their local ad atioal ecoomies ad form a importat part of Europe s pluralistic bakig ladscape. This is uderlied by the data preseted i the followig sectios (all tables referred to ca be foud i the Aex 1 - Statistics, Part 1). ESBG members rage from idividual baks to atioal bakig associatios, etworks ad groups. ESBG s direct members, as well as the differet credit istitutios represeted by ESBG at the EU level are preseted i Table 1. I the followig, iformatio o ESBG members is juxtaposed oto data o the EU bakig sector as a whole, drawig maily o data collected by the ECB. 17
2.1. ESBG members itegrated withi the Europea bakig sector With regard to the atioal bakig sectors, the umbers of idepedet credit istitutios active i Member States differ strogly. 1 I part, of course, this is a result of differeces i coutry size ad i the importace of the fiacial sector as a idustry. Nevertheless, structural differeces play a role also. I several coutries the bakig sector is characterised by the presece of a large umber of smaller baks ofte orgaised i etworks ad/or operatig withi a limited geographical radius. I other coutries the total umber of credit istitutios is comparatively low. The umbers of credit istitutios represeted by ESBG i selected coutries largely reflect the structural characteristics of the atioal bakig markets. This demostrates that the orgaisatio of savigs baks is iheret i the evolutio of atioal bakig traditios. A remarkable developmet over the last decade is that the umber of baks has decreased substatially i most coutries. This is due maily to a high degree of sector cosolidatio. This developmet is also reflected i the evolutio of the savigs baks sector. Yet, lookig oly at the time-spa betwee 2005 ad 2007, may Member States (ad ot oly ew Member States) have i fact experieced a icrease i the umber of baks. The geeral tred of cosolidatio i the atioal bakig sectors is strog, but ot persistet, also as a result of market etry by ew baks. Lookig at bakig sector assets i the EU, it is evidet that assets i the fiacial sector are largely drive by the total size of the ecoomy, ad also by the importace of the atioal fiacial idustry as a ecoomic ad export sector. 2 These factors are also reflected i the size of ESBG members i terms of assets. 3 Furthermore, to grasp correctly the importace of ESBG members i the bakig sector (as regards assets) it must be take ito accout that they traditioally focus o retail bakig, ad that hece may of them may hold a smaller share of wholesale fiacial assets tha other market participats. All i all the umbers cofirm that, i terms of assets, Europe s savigs ad regioally orieted retail baks are clearly importat players i their ecoomies. As regards employmet withi Member States, the bakig sector is a sigificat idustry. 4 Furthermore, employmet i the bakig sector as a share of total domestic employmet is comparatively stable across Member States with the obvious exceptio of those markets which specialise i ad export fiacial services. Yet, differet bakig activities differ i employmet terms ad, compared to other forms of fiacial services activity, retail bakig is particularly labour itesive. Therefore it is ot surprisig that may ESBG members are large employers i absolute terms, as well as withi their atioal fiacial sectors. 5 2.2. ESBG members a substatial part of the Europea bakig sector A cetral feature of retail bakig is the importace of baks local presece ad therefore of bak braches. 6 Give their retail bakig focus it is therefore atural that ESBG members ru large brach etworks. 7 They also are well represeted withi their atioal markets, as idicated by their geerally substatial share of total braches withi the domestic bakig markets. I more geeral terms, this demostrates ad is iheret i their importat role i the atioal retail bakig ifrastructure. Throughout the EU as well as for ESBG members, the great relevace of braches is mirrored by the importace of ATMs. 8 Here it is remarkable that the whole EU bakig sector ad ESBG members alike are geerally distiguished by a high ad steady icrease i the umber of ATMs. ESBG members ofte substatial shares of the total umber of ATMs i a give atioal market are characteristic of their importace as retail bakig providers. The poits made above are further uderlied by the umber of bak braches, bakig sector employees ad ATMs per millio ihabitats i each coutry. 9 Such a compariso ot oly demostrates the depth of atioal fiacial ifrastructure (EU data), but also illustrates how deeply embedded ESBG members are i their markets. 1 See Table 2. 2 See Table 3A. 3 See Table 3B. 4 See Table 4A. 5 See Table 4B. 6 See Table 5A for the total umbers of braches i the EU, as well as their evolutio. 7 See Table 5B. 8 For umbers i the EU see Table 6A, for ESBG members see Table 6B. 9 See Table 7. 18