Bank stability: Europe has just taken a major step

We have taken a major step last week to make Europe's 8.200 banks more solid and more transparent! After 19 months of negotiations, we have now gathered the elements of an agreement for a new deal for banks, putting in place the Basel 3 rules for Europe. The European Parliament and the Member States of the EU must now confirm that they agree to this draft compromise. On the part of the Council, I hope that finance ministers will approve it during their meeting next Tuesday.

By applying the Basel III rules to the 8.200 banks in Europe, we will honour one of our main G20 commitments. Above all, the succession of crises has taught us a lesson, and we are improving the solidity of banks, which will have to hold more liquid assets and equity capital of a higher quality in order to be able to absorb future shocks.

The impact of this agreement justifies the lengthy negotiations, and the last few lengths that remain between the EU and a final agreement: 19 months since my proposal, a time needed to hone the details of this text, adapt it to the European context, ensure its compliance with the Basel III rules and, lastly, check in detail that it is suited to meeting our main objective: that of ensuring that the banking sector can continue to finance the real economy.

In this respect, I can only welcome the decision by the Basel Committee itself in early January to adjust its rules along the lines of our proposal, in particular by accepting the gradual application of any new liquidity coverage ratio between 2015 and 2019. For the first time, we will have a global rule on bank liquidity which will in future help us to avoid situations similar to the one in which Dexia found itself: in need of public assistance due to its lack of liquidity.

Since the start of the legislative process, we have taken care throughout this work to act with caution and determination, without being affected by all those who would wish to undermine the strengthening of the rules and block this global reform, already implemented by a dozen jurisdictions such as South Africa, Canada, India and Switzerland, all countries whose economies, to my knowledge, continue to be duly financed.

It is my conviction that, like these countries, Europe needs these reforms. Besides the liquidity rules and the increase in capital equity as a "crash mat" in times of crisis, the reform will introduce a leverage ratio between capital and assets, and greater consideration of the counterparty risks linked to exposure to derivatives. National supervisors will be given more responsibility and the option of asking banks to rein in their activities in the event of a speculation bubble comparable to those which we saw in the internet or real estate sectors in some European countries.

Bankers' bonuses will be controlled so as to discourage excessive risk-taking. Here, I wish to explicitly congratulate the European Parliament, which stuck to its guns on this point and imposed limits on the relative size of bonuses compared to salaries. Lastly, boards of directors will have to make managers more accountable, particularly as regards exposure to risk.

One essential point is that this regulatory progress is designed to apply throughout the single market of the 27 Member States. It will allow us to establish the basis for a "single rulebook" which will also cover other rules which we are currently strengthening. These include the provisions on the protection of deposits, which are already guaranteed up to 100.000 euros per depositor in all Member States, and on tools to resolve banking crises in order to avoid taxpayers having to subsidise banks in difficulties.

Beyond the single market, it is essential that we achieve the uniform application of the rules on a global scale. Only regulatory convergence will make it possible to avoid the risk of arbitrage and foster financial stability. We most certainly need to reflect on how to reinforce global governance in the field of financial services, and the regulation of banks in particular, in order to have more solid guarantees that the G20 commitments will really be honoured by everyone.

The European Union holds its promises. We are waiting now for the USA to do the same. This issue was a focal point for my visit last week to Washington and New York, during which my hosts expressed their determination to fully enforce Basel III in the coming months. Europe and the USA must advance in tandem with their eyes open, and in the spirit of mutual trust, to enforce the new rules. A lasting return to financial stability hinges on it.

Europe needs a healthy, solid financial sector in order to achieve economic revival. I see no justification for the argument that these stability requirements could undermine growth. Sustainable, quality economic growth must be underpinned by a solid banking system which focuses on the medium and long term, rather than on short-term risks and returns.