Dear Mr. Hofmann, as the President of the EACB, how do you see the main challenges and opportunities for co-operatives banks for the starting year?
In 2018, for a whole year, co-operative banks celebrated the 200th birthday of Friedrich Wilhelm Raiffeisen, one of the founding fathers of the co-operative idea and the co-operative banking concept. All the EACB member organisations’ initiatives demonstrated once again that nowadays, in 2019, co-operative banking is still a very lively, strong and modern business model. This is why the specificities of co-operative banks should be protected and taken into account by the regulators.
A central piece of the regulatory reforms, namely the finalisation of Basel III, also dubbed Basel IV, is still to be implemented in the EU thus the regulatory agenda is still busy. Implementing “Basel IV” rules (which includes among others the revisions of the credit risk, operational risk and the so-called output floor) by 2027 will certainly be a major element of discussion for the future, in particular to ensure that there are no unintended consequences on the financing to the real economy and the connection to the local communities.
We also should highlight the growing importance that environmental risks and considerations are taking in the regulatory discourse, the ongoing legislative initiatives and the heightened attention of supervisors and policy makers on this subject is one of the major novelties. Co-operative banks can certainly leverage on the sustainability enshrined in their business model to accompany these developments.
Moreover, we cannot overlook the advances in digitalisation that on the one hand have the potential to introduce unregulated non-bank competition and on the other to exacerbate risks related to banks’ legacy IT systems and cyberattacks. Working to implement state-of-the-art IT infrastructure, digitalising processes and reducing legacy systems is a reality to be faced. However, as the relationship with our members and our long term orientation remain key to our success, we believe that keeping these elements at the center will allow us to move in the future confidently.
What is in your views the outcome of the discussions on the banking package, particularly on the CRR/CRD review?
The process that led to the CRR/CRD review was a lengthy one, we welcome its finalisation that should give on many regulatory elements finally some stability to the institutions, although as I mentioned the regulatory agenda still has some items to be sorted.
While the final texts are still not fully available, I would say that while some positive results were achieved regarding for instance proportionality (reporting, disclosure, trading book), supporting factors (SMEs and infrastructure), the NSFR, trade finance, governance aspects, treatment of salary/pension backed loans, the internal TLAC/MREL waiver, elements of the leverage ratio, grandfathering criteria for TLAC/MREL eligibility, strict approaches in other areas e.g. regarding minimum MREL or liquidity waivers mitigate the overall perception of the outcome. It must be underlined however that for the first time there is an explicit recognition of the need to reduce the administrative burden stemming from redundant and complex reporting and disclosure requirements and concrete elements have been introduced in this sense.
The CRR/CRD review should also be seen in the wider context of risk reduction measures, with changes brought as well to BRRD/SRMR and the initiative to tackle non-performing loans. Given these efforts, I would say it could now be time for a regulatory pause after such an unprecedented flow of new legislation, to allow banks to adjust to the regulatory requirements and to focus on serving their customers.
2019 is the year of the European elections, why is it important for the EACB?
The European elections are one of the largest exercise of democracy in the world and have a direct impact on the choices that we will have to face in the future. A sound European policy making, with an eye always on the preservation of the enriching diversities, is necessary given the challenges that the future is laying ahead of us in a global context that becomes more uncertain and fluid. Co-operative values of proximity, trust, sustainability, members’ key role, are shared by co-operative organisations irrespective of the country, and the EACB is fully committed to the European project.