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Shedding light on proportionality

Shedding light on proportionality

​​ESBG's De Noose addresses 7 March EBI event from savings & retail bank lens.​

>> Event programme | >> Event details

>> ESBG position on proportionality

>> EBA BSG Proportiona​lity Paper

Remarks by Chris De Noose​

 ​to the 

EBI Workshop on Proportionality in Banking Regulation

7 March 2018 | Brussels, Belgium

Venue: ​Single Resolution Board at Treurenberg 22, 1000 Brussels​​



For my part, I would like to shed light on our experience from a savings and retail perspective of the proportionality journey.

More than five years ago, in discussion with colleagues in the EBA Banking Stakeholder Group, we decided that more was needed to rebalance the choice made by the EU decision makers to apply the Basel III framework in the same way to all banks. Financial institutions were working hard to implement many complex regulations, and it was clear that some banks should abide by a framework that allowed them to continue their core activities: the financing of Europe, mostly of its households and SMEs.

But what could we do? How could we ensure the stability of EU banks whilst still making sure they had adequate lending capabilities?

The answer? Proportionality. This long word, which you will hear in nearly every sentence today, was not very well known when the EBA BSG started its work. It definitely existed; in the Basel Committee's Core Principles, and in the Treaty for the European Union, but it was not in the spotlight. How times have changed! 18 months later, a detailed report was issued by the EBA BSG which has been circulated widely among the EU institutions, authorities and other stakeholders.

It has even been referenced in the excellent background paper drafted by some of the EBI academics which will trigger the discussion today. Titled “Stability, Flexibility and Proportionality: Towards a two-tiered European Banking Law?", this paper looks in detail at the possibility of introducing a two-tiered banking system in Europe as it is already the case in other parts of the world. Japan and the United States are the examples quoted in this publication. “Regulatory Relief", as it is called in the US, is far more advanced than the European proportionality principle. This week, the US Senate will vote on regulatory relief legislation, which inter alia reduces the reporting, exempts them from the Volcker rule, or from mandatory Dodd-Frank Act stress testing.

Europe is still progressing towards alleviating the burden. Every single bank has to sift through every single EU text to see what does – and perhaps more importantly does not – apply to them. Let us take for example the current prudential and resolution package which amounts to 595 pages for only the level 1, which will become even thicker once the Risk Reduction Measures package is adopted, or the MiFID 2 regulation, with its 1874 pages, with the level 2 and 3 measures included. This burden must be reduced, and quickly, before we find ourselves in a situation where we cannot foster the growth of the EU economy and providing more jobs to our citizens. Proportionality will help us to ensure a brighter outlook on growing our businesses.

Proportionality is now being included in EU texts such as the CRR II and CRD V, which will be discussed this morning. There is a general consensus that it should also be included in the ESAs regulations – the proposal was explicitly made to consider proportionality in every impact assessment of the ESAs' work. Proportionality has been taken into account for disclosure, reporting and remuneration, and a general definition is being ironed out in the Parliament. But there is still more that we should do so that Europe's savings and locally-focused retail banks can continue to be key players in ensuring that EU citizens have access to finance. And this should not be limited to the size of the institutions, as it is crucial to capture the business models based in particular on the following criteria:

  • ​The first is to gauge the riskiness of a bank's activities. Activities which do not pose a risk to the financial system should not be subject to the same risk reduction measures as those which could destabilise the system.
  • The second is to ensure the diversity of the banking system. It has been proven that a diversified EU banking system reduced the effects of the financial crisis and therefore should be maintained.
  • The third is to look at the social and sustainable role of a bank. Look at how the bank operates within its town, its region. Savings and retail banks have a commitment to their area to provide access to finance, financial education, and support for local infrastructure and green finance.

These tasks build a strong case that local banks should be supported in their work and that proportionality is the best tool in the box to achieve our goal. 

I hope that the conference today will have lively discussions and develop new ideas. Please, don't be shy to ask your questions and share with us your views. Thank you in advance to our panellists, and many thanks to the SRB for providing us with this excellent venue. Ladies and gentlemen, we hope that you will enjoy your day, and that you will take with you our belief, and its concrete implementation, in proportionality.​