ESBG response to consultation on Pillar 3 disclosure of IRRBB

ESBG proposes to further delay the disclosure of the net interest income (NII) risk measures until the EBA requirements for these NII risk measures are specified.

BRUSSELS, 3 September 2021 – The European Savings and Retail Banking Group (ESBG) replied on 30 August to the European Banking Authority (EBA) consultation on draft implementing technical standards (ITS) on Pillar 3 disclosures regarding exposures to interest rate risk on positions not held in the trading book (IRRBB).

The draft ITS puts forward comparable disclosures for stakeholders to assess institutions’ IRRBB risk management framework as well as the sensitivity of institutions’ economic value of equity and net interest income to changes in interest rates. The proposed standards will amend the comprehensive ITS on institutions’ public disclosures, in line with the strategic objective of developing a single and comprehensive Pillar 3 package that should facilitate implementation and further promote market discipline.

ESBG believes that the approach chosen by the EBA for the development of the draft ITS is quite problematic due to the lack of a definition for net interest income (NII) metrics.

The disclosed NII metrics may not be comparable as long as the EBA does not define what it understands by these NII metrics. Moreover, it is very likely that future disclosed NII metrics will be based on different methodologies. Optimally, the methodological requirements for the calculations would be clarified by the EBA before the banks would be forced to disclose the calculated results. If this is not feasible, a clarification that banks may use internal metrics for disclosure until further notice would help.

In other words, the current chronological order of the published standards shows potential for conflict. We understand the EBA’s efforts to create as much clarity as possible for disclosure in a timely manner. However, for understandable reasons, the EBA has not yet defined the requirements under Article 98(5a) CRD to be applied to the metrics to be disclosed. That is why we strongly oppose the EBA’s expectations of institutions to apply the present draft before it enters into force.

Instead, ESBG proposes to further delay the disclosure of NII risk measures until the EBA requirements for these are specified.

Download

FULL REPORT

related


Euro slider by Tabrez Syed

ESBG launches paper on social taxonomy

​BRUSSELS, 5 JULY-ESBG follows with great interest the work carried out by the European Commission and the Platform on Sustainable Finance in developing the EU Taxonomy, and especially its extension to social objectives.

Locally-focused savings and retail banks are built on traditional business models that are centred on being responsible and conscious of the needs of society. We play a crucial role in supporting inclusive and sustainable societies, as we provide fundamental banking services to our customers – primarily private households, SMEs and local/regional communities. We contribute to strengthening social cohesion and ensure that no one is excluded from basic access to financial services.

Due to their specific role, position, and social tradition, we believe that savings and retail banks should be part of any debate on sustainable finance. In light of this, ESBG launched today a white paper on the crucially important social taxonomy. The two-pager describes ESBG members’ socially-committed business model and we highlights what makes them different from other banks. It will be of utmost importance to get the future social taxonomy right in order to allow Europe’s savings and retail banks to continue exercising their customer-centric, socially-committed and responsible approach to business.

Download

FULL REPORT

related


ESBG statement on dividends

The following statement by ESBG reacts to the European Central Bank 15 December recommendation on bank dividends.

​BRUSSELS, 18 December 2020 - ESBG appreciates the broad and open public debate, which took place over the past months, on banks’ dividends distribution, and we were pleased to see that the ECB recommended a less restricting approach earlier this week. This underlines once again that European banks are solid. We also welcome the review clause, which indicates that the path towards “normalisation” can possibly be continued next year.

Moreover, we fully agree with the authorities’ intention to ensure that lending to households and corporates is maintained during these challenging times. Savings and retail banks in Europe have a provable track record of fulfilling this duty in an excellent way during the Covid-19 crisis.

Nevertheless, we would like to point out a few more aspects, which might have been overlooked in the public debate.

First, we would like to make reference to savings and retail banks’ “Foundations”. These are socially committed bodies which are nourished by banks’ dividends. Hence, at the end of the day, a too restrictive dividends policy may be to the detriment of those who usually benefit from the Foundations projects. The fight against poverty, the fight for better financial literacy, and the support of small and regional projects are examples of what is being channelled through the valuable work of ESBG members’ Foundations.

Furthermore, we would like to recall the large number of small shareholders of savings and retail banks that hold bank equity. A bank dividend can, to a certain extent, sustain these shareholders’ income and facilitate that money flows back in the local economy.

Last, but not least, even if savings banks’ business model is characterised by a very regional focus, financial services, financial markets and the flow of money are global. No savings and retail bank can avoid this global dimension. If European banks are becoming less attractive to investors than non-European peers, the cost of capital for EU banks will become higher.

​ESBG members have been standing by their customers since day one of the crisis, for example by issuing a great number of additional loans and by swiftly agreeing with their customers on payment moratoria. It goes without saying that ESBG members will continue to do their utmost to reduce the negative effects of the crisis for their customers, who often are households and SMEs. However, savings and retail banks – as well as their Foundations and their beneficiaries – also depend on a well-balanced regulatory framework provided by the legislators and authorities, which might have counterproductive effects.

Note to editors:

The European Central Bank (ECB) recommended​ that banks exercise extreme prudence on dividends and share buy-backs. To this end, the ECB asked all banks to consider not distributing any cash dividends or conducting share buy-backs, or to limit such distributions, until 30 September 2021.​

related


Impact of Banking Regulation: Final Report

The four social partners – EBF-BCESA, ESBG, EACB and UNI Europa Finance – have carried out a project funded by the European Commission in order to assess the impact that banking regulation has had on employment.

Please find below the conclusions that we have drawn from the data collection exercise.

1. Total number of employees

In the EU28 we observe a total loss of 440,200 employees (-14%) from 2007 to 2016 in the banking sector. This shows data from the European Central bank (ECB) and also data from the members of the European social partners (ESP).

The spectrum of country profiles was wide over the period 2007-2016 ranging from significant job losses in some countries (-115.700 highest drop) to moderate job creations in others (+6.800 highest increase). The significant decrease in the number of employees in some large countries significantly affected the general drop at EU level. Reasons for domestic trends are most often country-specific and cannot be generalised. Recent policies aiming at the consolidation of the EU banking sector and the restructuring of banks’ branch networks have undoubtedly influenced the decline in employment. In parallel, the digitisation process in recent years has increased the demand for digital skills thus reshaping the equilibrium of the job markets in the banking sector.

2. Bank branches

The decline in bank branches between 2007 and 2016 (-22%) was stronger than the decline in employees (-14%) for the EU28. The average number of employees by branch was 14.7 in 2016 compared to 13.3 in 2007 for the EU28. So we observe an increase in the number of employees by branch in 20 EU countries, due to a stronger decrease in branches compared to employees. A possible explanation is that employees were distributed to other branches after the closing of their branch.

Regulation in the banking sector has put pressure on the number of branches and the number of employees. However, the impact on employment was not as extensive as the impact on the number of branches. This consolidation process is the result of both policy decisions and market trends including digitisation. To cope with this new environment, financial institutions are adjusting their business models to increase client proximity while restructuring their network of branches.

3. Age

A shift to senior age groups can be observed in the EU28 since 2007.

Looking at the total figures, notably the youngest age group 15-24 shows the largest decrease (-38%), followed by 25-39 (-19%), and finally the middle-aged group 40-54 shows a small reduction (-5%). Only the age group 55+ shows an increase of +35%.

Looking at the relative percentages, the groups 25-39 and 40-54 are of course still the largest. In 2007 the largest age group was 25-39 with 44%. In 2016 the largest group shifted to 40-54 with 41%.

The ageing trend of the average bank employee can be interpreted by: i) the stricter requirements on HR hiring procedures as a consequence of the 2007 financial crisis thus increasing the difficulties in recruiting young profiles; ii) the nature of the post-crisis job supply focusing on high-skill labour due to higher regulatory pressure; iii) the competition of new players such as FinTechs increasing the pressure on hiring job seekers belonging to the younger age groups (15-24 and 25-39 year olds).

4. Education level

There is a relative decline in low (-3%) and medium (-11%) education levels compared to an increase in a higher education level (+15%) for the EU28 between 2007 and 2016. This development correlates with an increase in higher age groups. A similar development with varying degrees can be seen in nearly all countries.

The growth of the share of profiles with higher education in the banking sector can be explained by a heightened regulatory pressure and a more complex environment. As a consequence, banks need to recruit more experienced staff with higher degrees.

Compliance with multiple regulations obliges banks to choose employees with higher qualifications.

5. Part-Time

Behaviours regarding part-time jobs adoption is clearly different across EU countries. While this practice seems to be widely accepted in countries belonging to the Western block of the EU (where part-time can represent from 24% to 28% of total banking jobs), it remains relatively modest in Eastern countries (below 1% in some countries). About 50% of all countries show a decrease vs. 50% increase in part-time contracts. The changes are mainly only slight. The relative decrease in part-time contracts in some countries was globally compensated by the relative similar increase in other countries. Logically then, the EU28 average remained stable at +0.3% points.

The development of part-time activities can be explained by the following key factors: i) the entrance of new seekers into the job market made necessary by the need for a higher household income in some countries; ii) the increase in wages in some countries allowing the possibility for one member of the household to work part-time; iii) the development of teleworking practices; iv) the need for more flexibility from households to lead in parallel personal and professional lives in a context of widely-accepted gender equality.

6. Permanent contracts

Permanent contracts still make up the majority in all countries and range from 72% to 99% of total banking jobs in 2016 depending on the country.

A majority of 20 countries show a small decrease compared to 8 countries with a slight increase from 2007 to 2016. The EU28 average shows also a minor decrease of 1.5% points.

Despite the recent development of part-time activities, permanent contracts remain the predominant form of employment in the banking sector. Yet adjustments are being made on permanent contracts enhancing flexibility for the workers and allowing them to perform their jobs remotely or giving them the opportunity to adapt their working hours in line with professional objectives and personal duties.​

7. Gender

Women still make up the majority in the banking industry with 52% in 2016 (LFS data, in ESP data: even more with 54%). In 20 countries female employees exceed 50%. The share of female employees is higher in Eastern European countries (as high as 70% in some countries), than in Western European countries (below 45% in some countries).

Comparing LFS with ESP data, the percentage of female employees is similar but not identical by country. In 7 countries, the percentage is slightly higher in ESP data, in 3 countries it is lower. We observe a decrease in female employees in 18 countries vs and increase in 10 countries. The strongest reduction amounted to 10% points while the largest increase reached about 16%. The EU28 remained relatively stable with -1.1% points.

Banking is one of the sectors that shows equality in employment between males and females. This is especially true in Eastern European countries where gender equality is uneven across sectors and where the banking industry could be seen as a leading and innovative sector in this respect.

8. Level of hierarchy

In the EU28 we observe a total decrease in the number of managers (-33%), clerks (-32%) and technicians (-9%) vs an increase in professionals (+87%) from 2007 to 2016 in the banking industry.

Executives:

In 2016, the share of executives in total employment ranged from 4% to 23% in EU countries. Several groups of countries with different trends can be observed: on one hand the group of fastest decline where the share of executives plunged by 8-12%, and on the other hand the group where the number of executives was quickly expanding with rates ranging from 8% to 9.5%. The EU23 average amounted to 12% in 2016 with a decrease since 2007 in the LFS data. In comparison the ESP average for the EU10 is 17% with a slight increase. The differences in the definition for executive positions across member states reduces the reliability of trends observed at EU level.

Female Executives:

The share of female executives varies widely with a scope going from 19% for the smallest share of female executives to 64% for the largest share. Six countries with larger shares show a decrease, whereas the majority of 13 countries with mainly smaller shares report an increase. The EU19 average indicates a small increase of 2.2% points.

Banks are gender agnostic in regards to employment and grant a high importance to skills and leadership. Over-representation of male executives seems to be changing but more time is needed to confirm this trend.

9. Pay Structure:

The pay structure was analysed on one hand by Eurostat SES data for section K (banking and insurance). This data was only available for the years 2006, 2010 and 2014. On the other hand we used ESP members’ data for 2007, 2013 and 2016 for 10 countries. As the latter is more specific for the banking industry and covers the requested years, we recommend focusing on these results. In both sources, we had a reduction in the percentage of variable pay since 2007.

ESP: In the ESP data variable pay varies from 0% to 17%. Only one country experienced an increase in variable pay (+5%) while other countries encountered a decrease in variable pay. The EU average amounts to 7% in 2016.

Eurostat SES: As of 2014, the percentage of variable pay varied from 2% to 21% in EU countries. The EU average amounted to 14%. 18 countries show a decrease compared to 6 countries with an increase.

Post-crisis remuneration policies carried out at EU level have impacted both managerial and non-managerial income with the effect of decreasing the share of variable income in total income.

10. Reasons for Internal Restructuring

A survey from Eurofound analysed that 82% of all published events report “internal restructuring” as the reason for job cuts in the financial industry (banking and insurance for the EU28) from 2007 to 2016. Internal restructuring is from the banking sector’s point of view more a consequence than a reason, therefore Kantar Live conducted a survey among the ESP members to get further indications. In the study four reasons were described to be most important, namely the financial crisis, market forces, digitisation and regulation. The current situation and the reduction in employment is induced by mutual interdependencies of these factors. According to expert interviews, market forces and digitisation are the main triggers, followed by regulation. The impact of the financial crisis seems to be more indirect due to stricter regulations. But the situation is different by country and this result may also vary.

Comments to the main factors:

Financial crisis:

  1. More indirect than direct impact through increased cost pressure caused by stricter regulations, changed policies, mergers etc.
  2. Job losses were more eminent after bust of the dotcom bubble. Nevertheless bank liquidations after the crisis, decreased branches and employees.

Market Forces

  1. Historically low interest rates and a low GDP impact remunerations.
  2. Increased competition by non-banking competitors: FinTech.
  3. Consolidations and restructurings after many mergers and acquisitions.

Digitalisation

  1. Technological innovation modifies the customer demand and customer relationship and fosters the arrival of new competitors, e.g. FinTech.
  2. New business models: RoboAdvisors, Artificial Intelligence, digital central staff functions, e.g. in HR reduce the need for personnel.
  3. Employment gains by new job profiles, e.g. in IT, will not compensate the immense job losses, e.g. in retail banking.

Regulation

  1. Increased costs due to more complicated processes, e.g. for documentation.
  2. Directive Basel III increased requirements on the equity ratio, which ties up capital.
  3. PSD2, the European Payment Service Directive, forces the banks to disclose customer and account data which increases competition, e.g. of fin-techs.

We should try to collect additional data in the second phase of the project in order to arrive to a more accurate basis for more specific conclusions. The pure numbers of losses do not reflect the efforts of employers and unions and social partners in general (including works councils) in mitigating the effect of the job losses.

A recent study across EU countries has revealed that around 82% of job losses in the banking industry between 2007 and 2016 can be attributed to “internal restructuring”. As a matter of fact, internal restructuring should be perceived as a consequence of environmental change that induced job losses rather than as a root cause. The key drivers of internal restructuring are, from the most important to the least important, as follows: i) market forces, ii) digitisation, iii) banking regulation; iv) the 2007-2008 financial crisis.

Regarding market forces, the environment in which banks have been operating since the financial crisis has been tough and turbulent. Low GDP growth among the EU28 countries combined with a low-interest rate monetary policy has put pressure on the profitability of financial institutions and forced them to adopt new commercial strategies. The entry of new competitors (e.g. FinTechs) on the banking market has also pushed traditional financial services providers to internally reorganise themselves in depth to meet new kinds of customer demands. Finally, the consolidation of the banking assets triggered by policy makers in the EU28 has led to a series of mergers and acquisitions and opened the door for organisational change and cost rationalisation at institutional level.

The advent of the digital era for financial services also played a role in internal restructuring. Technological innovations have created new customer demands, has reshaped customer relationships and has initiated the entry into the market of new competitors. About human resources, financial institutions are adapting new business models including the use of RoboAdvisors, Artificial Intelligence and digital central staff functions with a downsizing impact on labour-intensive tasks.

Another reason that led to internal restructuring is regulation. More complicated processes are leading to higher costs for banks. New prudential rules initiated by Basel III led to higher capital requirements and a need for banks to increase their prudential buffers thus reducing their capacity to reach out to the real economy. Also, the European Payment Services Directive (PSD2) has forced the banks to disclose customer and account data which increases competition.

Finally the financial crisis indirectly impacted financial institutions through a series of subsequent events such as increased cost pressure caused by stricter regulations, changed policies and mergers. The decline in economic conditions also led to a rise of NPLs which in some rare cases led to liquidation thus negatively impacting employment.

11. Changes in job profiles

We used a survey by EY, the European banking monitor (EBM), which covered 12 European countries as a starting point and complemented and verified the results by 5 interviews with banking experts in large European countries (France, Germany, Italy, Spain and Poland).

EBM stated that banking managers in 12 EU countries estimated in 2016 the major headcount reductions in administration, head-office functions and retail and business banking.

Job gains are expected in compliance and asset management, which is a contrast to 2013.

ESP: Banking experts in 5 EU countries expect for the next 10 years more loss than gain. Major loss is expected in administration and retail banking, gain is expected mainly in compliance and IT. The situation will of course differ between the countries.

Summarising, the overall expectations for the EU from EBM and ESP does not match completely but in the main aspects.

Reasons and Expectations for changed job profiles in the last and next 10 years:

Past: 2007 to 2016 (last 10 years)

1. Simpler activities were already either outsourced or automated, e.g. for payment transactions, loan processing and administration.

2. Alliances of joint data centres reduced the needed IT-experts, as one expert serves several centres. In Spain there were strong reductions among IT-experts caused by subcontracting and outsourcing to third parties.

3. In the past traditional (retail) banking was most developed, currently the trend (caused by digitisation and market pressure) goes more into asset management, private and corporate banking and internet banking.

4. In some countries the workforce remained relatively stable due to decrease and increase, e.g. in France and Poland but in others we had tremendous reductions, e.g. in Germany and in Spain.

Future: 2017 to 2027 (next 10 years)

1. Further big mergers among European banks are expected (comparable to HypoVereinsbank and Unicredit), which will affect employment.

2. New skills needed among the employees will evolve and organisations have to adapt.

3. Digital technologies and automation affects all areas and will decrease employment e.g. in payment and loan processing, head office and administration and retail banking.

4. IT experts with new skills are needed for the further digitalisation and automation but often these positions are outsourced. FinTechs will cause rivalry, but will also be taken over, which will lead to rising employee figures due to integration.

5. Regulation will create new jobs in compliance, but will also change job profiles. On the other hand, it might put pressure on jobs.

6. Changes in customer demand (e.g. self-deciders in finance), will cause the need for new business models, which means opportunities for new jobs, e.g. in product development.

The changes in job profiles reflect the changing world of banking.

Downloads

Download the final report on the “Impact of Banking Regulation on Employment” 

related