German Savings Banks Association President Georg Fahrenschon says enabling small and medium-sized retail banks in Europe – along with SMEs – can contribute to the economic development. The story will appear in the next issue of WSBI-ESBG News & Views magazine.
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BRUSSELS, 13 June 2016 – The European Commission has quite rightly put "Growth and Employment" at the top of its political agenda for the current parliamentary term. This will shift the focus to small and medium-sized enterprises, as well as to self-employed persons, as they account for 99 percent of the enterprises in Europe and employ two-thirds of the workforce in the private sector. They are crucial for the economic output and for the innovative capacity of the national economies in the member states. Credit institutions Europe-wide will move into the spotlight along with them, as they are the financial partners of choice for SMEs. Institutions like savings banks in Germany offer their assistance through all stages of an enterprise's development – from the time it is established until it is transferred to the next generation. This is the strength of the SME-oriented retail banks throughout Europe. This makes them an asset for national economies in many EU countries.
As a result, for example, long-standing and strong relationships have developed between savings banks in Germany and German SMEs. Any regulation at international or European level can affect these relationships. Whenever the EU Commission initiates new regulatory projects, it should be their leitmotiv to be "as SME-friendly as possible", right from the initial draft legislation. What the Savings Banks Finance Group therefore calls for here in Brussels is a "right of way for SMEs".
We very much welcome the EU Commission's announcement that it plans to continue to reduce the capital adequacy requirements for SME lending business. This is appropriate, as the risk of default for the sum total of small-scale SME lending business is lower than for a small number of large exposures amounting to the same lending volume. This has been proven in Germany by the German Savings Banks Association in cooperation with Deutsche Bundesbank. As the number-one financial partner, the Savings Banks Finance Group has the largest collection of balance sheet data. Had the SME scaling factor been abolished, as advocated by the European Banking Authority (EBA) a few years ago, the lending terms for SMEs would have deteriorated across Europe. It is good that this plan now seems to have been averted.
Moreover, small and medium-sized banks throughout Europe should not be drained of their strength by excessive regulatory requirements, which were actually developed for internationally operating big banks. Today, they have to meet many new requirements within the framework of the Banking Union in the fields of reporting, risk controlling, compliance and IT. Added to this are expenses for the EU bank levy and documentation requirements in connection with advice given to customers on securities. Some savings banks in Germany are now obliged to spend 5 to 10 percent of their earnings before taxes to meet these additional requirements. In our view, this is a signal that European banking regulation is still inadequate. This message has now also been understood by the European Parliament and the EU Commission. Many are prepared to make changes – either in the course of the revision of the Capital Requirements Directive and the Basel Capital Accord, or within the framework of the British-German initiative for small and medium-sized credit institutions. We call on those responsible to act quickly so as to enable small and medium-sized retail banks in Europe – and along with them SMEs as the growth drivers – to contribute to the economic development in the member states.