Official Journal of the European Union

C 237/46

Opinion of the European Economic and Social Committee on the communication to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions on completing the Banking Union

(COM(2017) 592 final)

(2018/C 237/08)






European Commission, 17.11.2017

Legal basis

Article 304 of the Treaty on the Functioning of the European Union

Section responsible

Economic and Monetary Union and Economic and Social Cohesion

Adopted in section


Adopted at plenary


Plenary session No


Outcome of vote



1.   Conclusions and recommendations


The EESC supports the measures adopted since 2012 which have made a decisive contribution to financial stability and broken the doom loop between banking systems and their sovereigns.


We therefore welcome — and also call for the concrete implementation of — the new set of measures proposed by the European Commission to complete the Economic and Monetary Union (EMU) and move towards an optimal monetary zone, overcoming the current resistance and achieving as soon as possible a greater precision for the completion of the third pillar of the Banking Union, through the progressive reduction and mutualisation of financial risks. Indeed, the completion of the Banking Union — and of the Capital Markets Union — should make it possible to fully establish the Financial Union, one of the fundamental pillars of the EMU.


More specifically, the EESC supports the various proposed goals for reinforcing the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), for facilitating the gradual reduction of financial risks and finally giving way to a pan-European deposit guarantee system that, in addition to guaranteeing liquidity, can assume losses and complete the third pillar of the banking union.


In order for this to be possible, it will be necessary to continue in parallel with efforts to share and reduce solvency and liquidity risks in the financial sector. The Committee reaffirms its previous position on this point, as set out in its opinion on the EDIS proposals. Alongside other issues in this area, the question of non-performing loans should certainly remain at the top of the agenda, particularly now that the economy is growing again.


Given that the original proposals on a European Deposit Insurance Scheme (EDIS) have still not produced results, after more than two years, it would probably be a good idea to take a different approach. The present communication provides scope for a broader discussion and for a phased approach to implementing the EDIS, which the Committee supports. It is important not to lose momentum in implementing the Banking Union, and to take account of the conclusions drawn during the negotiations. In any case, the Committee considers it necessary for both the EDIS and the relevant risk-reduction measures to be dealt with in parallel and without delay and actually put into effect, in accordance with a clear and specific timetable.


The Committee supports the decision to provide only liquidity coverage in the first phase, increasing over the years. At the same time, the national deposit guarantee schemes that are responsible for covering losses should still be given full attention; indeed, with a view to making the subsequent transition to the second phase as smooth as possible and in the interests of mutual trust, the Committee considers it important for swift action to be taken to further streamline the national schemes as much as possible. It is also important to address legacy issues and moral hazard.


Loss coverage will be added in the second phase, but the transition is not automatic. The proposed formal decision should, in the Committee’s view, be founded on the broadest possible basis, and it therefore seems appropriate for this decision to be taken not by the Commission alone, but rather together with the Council and Parliament.


The progressive increase in loss coverage by EDIS is a good thing in principle, but the mechanisms for implementing this scheme deserve greater attention in the texts.


More generally, the communication is phrased in very general terms on a number of points, and makes proposals ‘conditionally’. This undoubtedly provides room for further discussion, but sometimes comes at the expense of decisiveness. There are also a number of important aspects that are omitted or somewhat glossed over. The Committee calls for swift progress to be made, together with all stakeholders, and for the proposals to be made more concrete. In addition, Member States must take up their responsibilities, and continue to work on measures adopted previously, particularly those concerning deposit guarantee schemes. This is very important, especially in the context of a phased approach as set out in the present communication.


In line with the aim to create a pan-European deposit guarantee system, the immediate operability of the European Monetary Fund, in its function as a firewall for the SRM as a lender of last resort is crucial. Likewise, the EESC also strongly supports the planned functions of this body tackling so-called asymmetric shocks.


The improvement and consolidation of the pillars of the Banking Union and the application of the Single Rulebook must go hand-in-hand with implementation by the financial industry of the SDG 2030 and the Paris commitments on climate change, thereby establishing more favourable treatment in capital requirements for investments in the green economy and various long-term non-complex ‘inclusive lending’ operations, such as mortgages, particularly those linked with energy efficiency, installation of solar panels, etc.


Likewise, FinTech and other financial innovations (such as blockchain and smart contracts) represent a new call to action to complete and revitalise the banking union and improve the financial and digital inclusion of European citizenship, in accordance with EU strategic goals. In the current formulation of the SDGs 2030, financial inclusion already contributes 7 of the 17 objectives, while the digital inclusion that could ensure it or put it at risk in a new context affects almost all of them, explicitly or implicitly.


As already stated in different opinions, the EESC reiterates its commitment to a diverse financial ecosystem in which the large pan-European players coexist with small and medium-sized banks and other non-banking entities that focus reliably on the financing of the real economy on an equal footing, in an environment of much reduced systemic risk. Diversity, transparency and sustainability are the best antidotes against future financial crises.


In the opinion of the EESC, it is now imperative to stimulate the participation of those countries that are not part of the euro area. At the same time, each of the three pillars of the Banking Union should contribute to strengthening the global financial architecture, increasing cooperation at European and international level under its regulatory framework and providing its experiences, especially to the thirty non-European countries whose monetary reference is the euro, including the francophone countries of Africa.

2.   History, background and summary of the new communication


The Great Recession, which began ten years ago, put the euro to the test and entailed high costs, to a greater or lesser extent, for the euro area countries. The financial rescue operations consequently also had a negative impact on sovereign risk.


The Banking Union was set up in 2012 with the aim of creating a unified and integrated financial system for implementing monetary policy effectively, enabling adequate risk spreading across the Member States, and restoring trust in the euro area banking system, as a response to the structural defects in the incomplete design of the euro. Thanks to the positive changes in the monetary policy of the European Central Bank (ECB) and the budgetary policies of the EU Member States, progress has been made towards an Economic and Monetary Union (EMU). The current challenge involves introducing the euro in all 27 EU Member States and completing the third pillar of the Banking Union.


In the light of populist threats and the increasing risk of a shift towards nationalism, primarily due to increased disparities resulting from asymmetric shocks in the euro area, there is a broad political consensus on the need to complete the financial union (Banking and Capital Markets Union), in order to protect the EU’s financial stability and territorial integrity against, as the Commission president Jean-Claude Juncker put it, the ‘poison’ of nationalism.


Another important new challenge concerns financial technology (FinTech) and other innovations in the financial infrastructure, which have so far slipped under the radar of financial supervision. In the Commission communication of September 2017 on ‘Reinforcing integrated supervision to strengthen Capital Markets Union and financial integration in a changing environment’ it is stated that ‘[i]n developing the Financial Union, the opportunities of financial innovation have to be used to the fullest extent, but new risks also have to be managed.’ An action plan is announced for the beginning of 2018 (1).


The progress towards the Banking Union that was achieved with the establishment of the regulatory, control and sanctioning tasks of the Single Supervisory Mechanism (SSM) (2) and the Single Resolution Mechanism (SRM), which together with the ‘single rulebook’ set out in the Roadmap towards a Banking Union constitute the most important milestones, was tempered in the years of the nascent economic recovery as the euro area partners preferred to reject the synergies stemming from financial integration rather than share the risks.


We are therefore faced with a broad range of statements and proposals which, while they have delivered progress, have not led to risk reduction and risk spreading. The EU co-legislators have still not provided sufficiently specific answers for how to complete the Economic and Monetary Union, in particular with regard to: compliance with the 2014 directive, as strengthened by the Council in 2017 (3); the proposal for a regulation of November 2015; the partial and further development of the Capital Markets Union; the launch of the Consumer Financial Services Action Plan (2017); the new measures for the reduction of NPLs (Non Performing Loans) (4), etc.


The aforementioned proposal for a regulation of 2015 provided for the gradual and progressive development of a European Deposit Insurance Scheme (EDIS). In the first phase a reinsurance scheme would be used, before transitioning to a gradually mutualised system (co-insurance), and finally, in the third stage, arriving at a situation where from 2024 onwards the risk is fully borne by the EDIS. Together with this draft, the Commission announced in parallel a number of measures aimed at reducing risk in the Banking Union. Unfortunately, negotiations have not so far been successful.


There is also still work to be done on the national deposit guarantee schemes (DGSs), which could help to pave the way forward. Issues include the fact that there are still some significant differences between Member States in the implementation of the rules in the Deposit Guarantee Scheme Directive and the need to improve the exchange of information and instruments to promote coordination among national DGSs (5).


In order to break the deadlock between the co-legislators, this communication tightens the criterion for bail-in and proposes, firstly, to introduce a common backstop for the Single Resolution Fund and, secondly, to create a more comprehensive roadmap for the European Deposit Insurance Scheme, starting with reinsurance (by only offering gradual liquidity coverage, while banks supply the common fund) and then, in a second phase, moving towards co-insurance, for which the condition could be that risks relating to non-performing loans are sufficiently limited (6). To that end, a first additional measure is proposed aimed at reducing the likelihood of business insolvency through restructuring procedures, while efforts are also being made regarding the early introduction of provisions on non-performing loans as part of the revision of the SSM Regulation. The Commission communication on the mid-term review of the Action Plan on Capital Markets Union of mid-2017 also announces short-term measures to develop a secondary market for non-performing loans (7). Ultimately, this means that sufficient progress also needs to be achieved in terms of reducing risk in the banking sector.


The second additional measure concerns the diversification of banks’ sovereign debt holdings. Sovereign bond-backed securities may make a contribution here and at the same time offer additional guarantees. Following the work carried out by the European Systemic Risk Board (ESRB), the Commission is considering presenting a legislative proposal at the beginning of 2018.


By the spring of 2019, all risk sharing measures should therefore have been introduced and the implementation phase should be able to begin, starting with the agreement between the co-legislators on the basic elements of the banking package of November 2016 and significant progress on the remainder, followed by clarification of the existing powers of control in order to mitigate the risks related to non-performing loans, and a proposal for the assessment of investment firms.

3.   General comments


Now that the economies of the euro area countries are growing again and bank financing of the economies is also increasing, it is time to boost the resilience of our financial system, ensuring that possible financial crises do not lead to further market fragmentation (8) and pose another expensive test for the euro and European integration as a whole.


To this end, it is essential that a ‘fully mutualised’ Common Deposit Insurance Fund is set up to complete the European Union’s financial structure and tackle the current mismatch between bank supervision and resolution (which are centralised) on the one hand, and national deposit guarantee schemes (which are not harmonised) on the other hand. This also requires sufficient progress in terms of reducing risk in the banking sector.


Progress in the areas of risk reduction and deposit protection go hand in hand, and the Committee therefore reaffirms the principles it has already stated with respect to the original EDIS proposals (9). In particular, it was stated that, since both kinds of measures have a number of important basic objectives in common relating to strengthening and completing the Banking Union, they need to be implemented in the same way using genuinely equivalent tools and methods. And so, with a view to achieving real progress, the Committee considers it essential to ensure that both the EDIS and the relevant risk reduction measures are dealt with in parallel and without delay and actually put into effect, in accordance with a clear and specific timetable. Creating the right conditions to move forward is also very important for the further completion of the EMU, of which the Banking Union is an important part.


Alongside other initiatives relating to risk reduction, the issue of NPLs (10), and their uneven distribution by country in particular, must certainly remain high on the agenda, as it is essential to make progress in this field. As has been recently stated, in overall terms progress has been made, but the averages are not everything (11). As well as banks that are tackling the issue robustly, or at least moving in the right direction, there are still also banks that are denying the problem or not addressing it ambitiously enough. Now that the economy is growing again, it is important to address this as a matter of priority, to resolve both legacy issues and future ones. The challenge is to achieve effective results on the ground. This is vitally important in order to make progress in implementing the third pillar of the Banking Union.


Compared with the original EDIS proposals from 2015, the present communication provides scope for a broader discussion on the European deposit insurance scheme and a more phased approach to implementing it. At a time when it is important not to lose momentum in implementing the Banking Union, and to take account of the conclusions drawn during the negotiations, the Commission’s new approach is a realistic one and the Committee can support it.


The Committee supports the decision to provide only liquidity coverage in the first phase, which means that, during that phase, losses will be covered via national deposit guarantee schemes. In order to avoid making the subsequent transition to the next phase unnecessarily difficult, and in the interests of mutual trust, the Committee considers it important for it to be made clear right from the start that further action must be taken to streamline the national schemes as much as possible, so as to eliminate major discrepancies between the Member States. At the same time, it is also important to address legacy issues and moral hazard.


With regard to the transition from the re-insurance phase (see above) to the co-insurance phase, which is contingent on a number of conditions, the decision to proceed should, in the Committee’s view, be founded on the broadest possible basis, and it therefore seems appropriate for this decision to be taken not by the Commission alone, but rather together with the Council and Parliament (12).


It is also necessary to be as clear as possible about the conditions that will apply both during and after (13) the transition to the co-insurance phase, in which both liquidity coverage and loss coverage will be provided. The proposal to build this up gradually (14) is a good one, but at the same time there is some concern that the current text is still too general and too vague, and leaves too much room for different interpretations and discussions. There is a need to have more guidance and certainty on this subject right from the start.


More generally, it is worth noting that, within this broad outline, the communication is phrased in very general terms on a number of points, and makes proposals on a provisional basis. On the one hand, this provides room for manoeuvre that could be useful in future negotiations between and with the Member States, but on the other hand it means that the text seems more indecisive (15) and is not always as clear as might be hoped. A number of important aspects are omitted or glossed over, including recognition of the role of the institutional protection schemes, which the Committee has drawn attention to previously (16). In order to resolve these issues, it is now important to work with all other stakeholders (including the Council, Parliament, Member States, Commission, etc.) to make rapid progress and to make the proposals more concrete.


The EESC urges the co-legislators to use the comprehensive package of measures to strengthen the Economic and Monetary Union (17), published on 6 December 2017, in order to accelerate consensus-building.


The EESC supports the ECB’s intention to ensure that banks offer harmonised services in all EU Member States (18) and thus reap the benefits of a larger market. It calls on those Member States that do not yet participate in the common currency to join the Single Supervisory Mechanism (SSM), as a first step towards their full integration into the euro area.


The completion of the EU’s financial architecture must go hand in hand with digital and financial inclusion, in accordance with the United Nations’ Sustainable Development Goals for 2030. The EESC emphasises the potential role that banks can play in the fight against climate change and the application of 13 of the 17 SDGs, through their intermediation functions between conscious savings and socially responsible investment (SRI). In this regard, the conclusion of the Basel III reforms on 7 December 2017 should be carefully reviewed to ensure that European bank lending is not curtailed in the areas that are critical for sustainable finance.

4.   Specific comments


The EESC supports the measures proposed by the Commission to limit the risks in the area of supervision, resolution and deposit guarantee (in the possible transition from reinsurance to co-insurance).


The EESC emphasises that harmonisation of national deposit guarantee schemes should go hand in hand with the establishment of the EDIS process. The EESC urges the Commission to set up an initiative to allow national deposit funds to contribute to completing the architecture of the European system, with equal treatment being ensured for non-systemically important entities (19). The EESC supports the right of National DGSs to run alternative measures, without being contrary to competition rules, as been referred to in Art. 11 of the DGSD 2014/49/EU.


The EESC strongly supports introducing a backstop for the Single Resolution Mechanism as soon as possible, using a credit line from the European Stability Mechanism, as proposed for example by the Task Force on Coordinated Action (TFCA).


The EESC supports the strengthening of the supervisory powers under the Single Supervisory Mechanism as well as of the statutory prudential backstops (Pillar I), in order to tackle non-performing loans in a harmonised manner. In this respect, the Commission should demonstrate that in the light of the new supervisory powers the competent authorities can influence banks’ provisioning policies on non-performing loans.


The aforementioned prudential regulatory protection mechanisms should be applied in each of the banks in proportion to their systemic risk profile, often linked to their business model. This would mean that small and medium-sized banks that do not generate excessive risks have appropriate requirements and are not ‘overregulated’.


Likewise, the EESC recommends that capital requirements for banking obtain more favourable treatment for investments in the green economy (20) and consider the application of capital surcharges for investments in the ‘brown’ economy. The SSM should exercise specific supervision in this matter.


Consideration should be given to further innovating the legislation on non-performing loans by exploring whether a greater role can be played by private credit insurance services, which have a threefold function — prevention, compensation and recovery — and as a result of financial innovation are increasingly associated with banks. In its reports, the ECB concludes that some of these risks, such as interest rate risks, are adequately managed by most European credit institutions. It should also be noted that the US overcame the subprime mortgage crisis when the Federal Reserve also provided major reinsurers with access to liquidity.


Finally, the EESC calls, as in various previous opinions, for competitive conditions that are fair and technology and business model neutral. As regards this opinion, it once again calls for a level playing field with respect to supervisory tasks. This means that more checks should be carried out on shadow banking, investment firms and FinTech companies, in line with the basic approach of ‘same risks, same rules, same supervision’. Thanks to the rules for these new players, which have often given rise to legal proceedings, the possibilities for financial inclusion will be increased without compromising consumer protection.

Brussels, 14 March 2018.

The President of the European Economic and Social Committee

Georges DASSIS

(1)  See COM(2017) 542 final (Section 4, p. 11 onwards).

(2)  Council Regulation (EU) No 1024/2013 (OJ L 287, 29.10.2013, p. 63).

(3)  On 16 June 2017, the Council reached an agreement on a bank creditors’ hierarchy in insolvency proceedings in a directive based on which the Member States can introduce an explicit subordination of unsecured deposits that would have to be ‘saved’ in the event of bank failure.

(4)  COM(2018) 37 final

(5)  See communication, page 12.

(6)  Despite the improvements, at the end of 2016 European banks had twice as many risk-weighted assets on their balance sheets (19,1 % on average across the EU, 18,8 % for the euro area) as those in the United States (Japanese banks were somewhere in between), while the European figures at the beginning of the crisis in 2008 had been better than those of the other two major powers. In addition, the percentage of non-performing loans remains three times higher than in the US and Japan.

(7)  See COM(2017) 292 final, in particular ‘priority action 5’.

(8)  Banks have reduced their exposure to other Member States and cross-border payments still only account for 7 %.

(9)  OJ C 177, 18.5.2016, p. 21.

(10)  Non-performing loans.

(11)  Interview with Danièle Nouy, Chair of the Supervisory Board of the ECB, in Público, 11 December 2017. See https://www.bankingsupervision.europa.eu/press/interviews/date/2017/html/ssm.in171211.en.html

(12)  Without prejudice to the important role played by the supervisory authorities in this regard.

(13)  See the communication, point 3.

(14)  In general terms, it is currently proposed that loss coverage will be provided by the national deposit guarantee schemes and the European deposit insurance scheme, according to a key which would develop progressively, starting with a 30 % EDIS contribution as of the first year of the co-insurance phase.

(15)  Many of the elements are described in the conditional mood: see the regular use of ‘would’ and ‘could’ in the description of the two phases of implementing the European deposit insurance scheme (page 10 et seq.).

(16)  OJ C 177, 18.5.2016, p. 21.

(17)  COM(2017) 821 final.

(18)  OJ C 434, 15.12.2017, p. 51.

(19)  On the basis of Regulation (EU) No 1024/2013 only systemically important credit institutions are subject to the Single Supervisory Mechanism.

(20)  The arguments in favour of the ‘green supporting factor’ refer to the positive systemic value of green activities that reduce long-term environmental risks, and to the need to integrate positive externalities. See http://www.finance-watch.org/our-work/publications/1445 and https://ec.europa.eu/info/publications/180131-sustainable-finance-report_en