STRASBOURG, France, 11 May 2016 – A dozen members of the European Parliament met today with leaders of ESBG to discuss the future of local banks. Held today in the European Parliament in Strasbourg, ESBG members and parliamentarians discussed a slew of EU policy topics around the future of banking and how that future should include savings and retail banks.
Hosted by MEP Peter Simon (DE, S&D), the lunchtime meeting forms part of efforts to maintain the important dialogue between MEPs and ESBG members. For ESBG, it gave another opportunity to underline the important role of ESBG members, particularly as it relates to access to finance for private individuals and small and medium-sized enterprises. MEPs' expressed their expectations towards banks in those and other related spheres.
DSGV President Georg Fahrenschon presented the main ESBG policy asks followed by open discussion with MEPs. ESBG participants and members added their expert level insights to the conversation.
One area that took centre stage was the digital wave and banking. ESBG representatives from Cecabank, CaixaBank, Swedbank, who shared with legislators present that a new era of digitisation is changing the way banks are serving their clients from the traditional branch bank model to online and mobile. The meeting comes at a time when savings and retail banks are being joined by a bunch of new entrants without the same regulatory baggage, including Fintechs, peer-to-peer lending and crowdfunding platforms. It means that savings and retail banks need to continue to adapt their business model, and fast in order to acclimatise the new tools to local customers' needs.
Overall ESBG thinks that promoting European digital infrastructures –search engines, social media, automated translation technology as notable example – can further develop digitalisation and enable more consumers to participate in the digital era. Regarding fintechs, regulators should aim for a level playing field while being cautious not to stifle innovation. By this means, self-regulation and the enforcement of existing regulation should be sufficient to control online platforms. Regarding data flow, however, a regulatory framework is needed. Third companies should not have access to client data which a company has collected on its own. In addition, personal data should be stored in a cloud within Europe to foster consumer trust.
Promoting growth with help of SMEs
The need for more SME financing was also debated during the dialogue. Part of the foundation of savings and retail banks, lending remains the more sought after form of financing by small and medium-sized firms. Policymakers should see capital markets as a complement to bank lending when legislation is considered around the EU Capital Markets Union. Beyond capital markets, risk treatment of SMEs exposures, synthetic securitisation and guarantee schemes are important areas to expand the SME financing toolbox. Policy can help the savings and retail model thrive, but taking into account their specific nature, which is vastly less complex and committed to retail and SMEs clients, remains a challenge. Getting policy right would help savings and retail banks to focus on growing the European economy through the support given to its bedrock – local communities they serve.
ESBG argues that there cannot be one single approach for allowing SMEs better access to finance. Rules focusing on the capital market instruments are incomplete and stimulating bank lending to SMEs should also been given a priority as banks dispose of sophisticated credit risk assessment systems and have an irreplaceable knowledge of and relationships with local enterprises. Also, it is important that the capacity of banks to lend to the real economy, including SMEs, is not hampered by non-appropriate and overly burdensome regulation which has an even more aggravated effect when coupled with the current low interest environment and much needed investments into digitalisation and innovation while dealing with new entrants.
SME financing in bank lending context
Association members have €500 billion loans to SMEs in Europe. ESBG member the German Savings Banks Association accounts for 42.6%of the market share amongst SMEs in Germany. In France, ESBG member Groupe BPCE is the top bank for SMEs in the hexagone, with a 38% penetration rate. In Spain, 53% of small and medium-sized enterprises are ESBG member CaixaBank's customers. Lloyds Banking Group, the ESBG UK member, has 31% market share among SMEs in Britain.
Predominance of bank loans over capital market financing in EU
Although differences exist between European countries, bank loans generally represent the most important source of financing during the start and expansion of the business in the EU when compared with capital market financing.
Low interest rate environment
As borrowing conditions improve and no tangible signs of deflation risks in the near future, ESBG leaders see that new expansionary monetary policy measures would scarcely have any further positive impact on the economy. Banks remain on the front line when it comes to low interest rates and face a negative interest rates situation in which lenders would potentially have to pay borrowers and/or customers would have to pay banks for putting their savings on a bank account. Negative interest rates represent a serious threat to the banks' business models because interest rate margins are being squeezed.
High regulatory requirements are having an adverse effect on ESBG member banks. Regulation needs to fit more correctly around the savings and retail banking model, which accounts for a third of all locally focused banking activity in the European Union. It is crucial that current and new legislation is applied in a proportionate way to all financial institutions, taking into account their size, complexity and the type of business model they follow. Each legislation should be assessed on a case by case basis, as there is no simple set of criteria which can be used to apply the principle of proportionality. Locally-focused, less-complex financial institutions need to be able to provide the wide range of services in the regions in which they operate, in order to provide SMEs with access to finance and support to private individuals. This will allow all areas of the European economy to grow.
Savings and retail banking in Europe
ESBG members comprise approximately one third of the retail banking market in Europe, with total assets of €6,702 billion, non-bank deposits of €3,485 billion and non-bank loans of €3,719 billion (31 December 2014). They remain convinced that pluralism and diversity in the European banking sector safeguard the market against shocks and continue to show support to many dossiers currently being discussed at EU level.
ESBG Positions updated
Parliamentarians attending the event received a hard copy of ESBG Positions, quarterly released publication from the Brussels-based retail and savings bank association. ESBG considers the document an important reference when discussing EU banking policy .
>> See the May edition of ESBG Positions
>> Discover: ESBG position on CMU
>> Learn more: capital markets, SME lending
>> Read ESBG's position on proportionality
>> See ESBG stance on digitisation