L’Banking Union it has not yet been completed in the Eurozone. Still missing is a consolidated deposit insurance, which would make all banks safe in the eyes of the public. But we must give credit to the ECB for being a formidable integration machine. The process should not be stopped. This is the opinion of Andrea RestiAssociate Professor of the Finance Department of Bocconi University and expert in credit systems and banking regulation.
Request. Professor Resti, which banking system inherited the single supervision of the ECB ten years ago?
Answer A system suffering from significant weaknesses, which has not yet fully resolved the crisis of structured securities linked to subprime mortgages and has strained intermediaries in some countries due to large losses accumulated on government bonds.
Q. Today, across much of the Eurozone, capital ratios have grown while non-performing loans have fallen sharply. Can these be considered the main results achieved?
R. In retrospect, yes. In the future, the main achievement will be to create a stable, relatively transparent administrative infrastructure capable of intervening without delay in the face of new financial or macroeconomic risks. I’m thinking of the measures taken during Covid 19, or the reviews carried out on individual banks when government bonds and other long-term assets incur huge losses due to rising charges, Silicon style Valley Bank.
Q. Except for the outbreak of 2020, credit (especially to businesses) grew slowly in many European countries and at some stages fell sharply. However, not even during the expansion of monetary policies was the trend particularly buoyant. In your opinion, is this a problem that the supervisory authorities underestimate or in front of which they find themselves powerless?
R. Stimulating credit is the job of governments and the central bank. A supervisor should, if anything, worry when jobs grow more than the real economy and intervene to avoid the risk of unjustified bubbles. This explains the paradox of the ECB, which in recent years has boosted credit with Mario Draghi’s expansive monetary policies while maintaining control over banking assets through imposition, with Daniel Nouy, a reduction in financial gain. Someone talked about turning a blind eye, to me it seems like a normal difference of work between the central bank and the administration.
Q. ESG policies have entered the agenda in recent years. While on the one hand attention is needed, there are those who fear that the new climate risk rules above all may penalize access to credit. What is your opinion?
R. Many investors, thinking of their children, willingly support companies pursuing decarbonization policies and credit institutions committed to accompanying them. Banks themselves, therefore, have a clear incentive to help entrepreneurs protect themselves against climate events such as floods or droughts, which could endanger their production and financial balance. So it is possible to invest, provide credit and reduce climate risks at the same time.
Q. Europe lacks international banking champions that can only emerge from cross-border M&A operations. Are regulations the main barriers?
R. Only partially. Some regulatory barriers must definitely be removed, such as in the circulation of intra-group liquidity in multinational banks. But more than that, a misunderstood definition of national interest must be removed, which makes some European banking systems, not ours, immune to foreign takeovers because of the “blood connection” between large intermediaries and governments, to use a good image of Aurora Lalucqwho recently took over from Irene Tinagli as head of the Finance Committee of the European Parliament.
Q. In general, what is missing to complete the process started in 2014? What is Europe missing to have a true Banking Union?
R. Integrated surety deposit insurance, making all banks equally safe in the eyes of the public. However, let’s not underestimate what has been done in recent years: a more transparent and credible ECB, imposing equal practices for all, could be a formidable driver of integration. The process should not be stopped.
Q. One project the ECB is working on is the digital euro. Do you share the fears of disintermediation that many bankers have at this stage in relation to the Frankfurt project?
R. For me, the dangers of integration are known by those who follow the project, first Fabio Panetta and now Piero Cipollone. Merchants will be able to transfer digital euros but not own them, and private individuals will only have a small, non-repayable amount. So I don’t see a real danger of disintermediation. (All rights reserved)