Banking Union and Capital Markets Union - priorities for the next European Commission

Achieving the Banking Union (BU) and the Capital Markets Union must be key priorities for the next European Commission, as both projects offer households and SMEs wider access to finance, increase financial stability, reduce the impact of economic recessions, finance the transition to a green and digital economy and unlocks the EU's growth potential, according to the draft report prepared, at the end of last week, by the rapporteur Ivars Ijabs for the Committee on Economic and Monetary Affairs of the European Parliament with a view to proposing a resolution to be adopted in the next period of MEPs.

The draft resolution states: "The European Parliament asks the Commission to maintain the completion of the BU and the Capital Markets Union as key priorities for its next mandate; underlines that both projects give households and SMEs access to wider financing, increase financial stability, reduce the impact of economic downturns, finance the transition to a green and digital economy and unlock the EU's growth potential; warns that the recent increase in the profitability of EU banks is not enough to ensure their competitiveness; points out that fragmentation limits banks' ability to make strategic investments; calls for the promotion of consolidation in the EU by removing regulatory obstacles for cross-border mergers; stresses that consolidation would increase the profitability of the EU banking sector and financial stability; underlines that the banking sector should be key in delivering the transition to a digitized and carbon-neutral economy and in channeling funds to renewables."

The cited document mentions that the Banking Union (BU), which currently includes the Single Supervisory Mechanism and the Single Resolution Mechanism, must be completed by creating a European Deposit Insurance System (EDIS), a system that would improve the competitiveness and stability of the banking sector, the choice consumers and would facilitate access to finance.

Even if the European banking system has withstood the impact of Russian aggression, the fragmentation and lack of cross-border consolidation of the EU banking sector is affecting its global competitiveness, and the profitability gap between EU and US banks has widened, the draft report also states.

"A strong banking sector is key to ensuring economic growth, financing small and medium-sized enterprises (SMEs) and start-ups, and the transition to a green and digital economy", says rapporteur Ivars Ijabs in the document sent to the Business Committee Economic and Monetary Affairs of the European Parliament.

The cited document also condemns Russian aggression against Ukraine and its impact on the Ukrainian people and the EU, calls on banks to continue reducing their exposure to energy-intensive corporations, calls on the European Commission to create an EU-wide database to promote coordination between banks, close gaps in the implementation of sanctions by member states and assess how EU banks are implementing the sanctions, and wants the involvement of Brussels institutions in assisting European banks remaining active in Russia to prepare for an orderly exit from on that market.

The draft report and motion for a resolution stress that the limited impact of the recent failure of US mid-sized banks demonstrates the resilience of the EU banking sector, showing that EU supervisors have effectively managed the risks posed by changes in the interest rate landscape. The cited paper states that EU banks could withstand an economic downturn and notes that banks' exposure to interest rate risk depends on their asset structure and business model.

That is why the European Commission is requested to further harmonize the EU regulatory framework and use the supervisory dialogue to forecast the evolution of threats to the banking sector.

Regarding the non-banking financial intermediary sector, the cited report notes that the sector continues to grow and criticizes the fact that there are different rules for these activities, rules that can involve significant risks. That's why it asks the European Commission for an appropriate regulatory approach for "shadow banks", the promotion of fair competition with the banking system, the approach to risks generated by banks' exposure to these activities, an assessment of the quality of banks' assets and recommends the start of the centralization of liquidity and the gradual building of funds.

If the resolution related to the report is adopted by the European Parliament, it will be sent to the EU Council, the European Commission, the Central European Bank, the Single Supervisory Council and the European Banking Authority.