Message from the CEO, Nina Schindler
The ongoing global shift towards a more sustainable and technologically advanced economy, driven by the imperative to address pressing environmental risks such as climate change and harness digital opportunities, underscores the vital role of cooperative banks. With their enduring proximity to members and customers, cooperative banks are best positioned to align financial services to the local needs of society and promote a fair empowerment of regional economies.
This edition of the EACB Newsletter features Mario Nava, Director-general of DG REFORM from the European Commission. His team are tasked with providing technical support to EU members and spearheading policy reforms that stimulate job creation and sustainable growth. Their project priorities acknowledge the importance of cooperative banks in the broader goals of sustainability and digitalisation across Europe. Evidencing this, Caixa Rural Galega in northwestern Spain is actively supporting the transitions in numerous ways, including by funding sustainable projects, fostering an innovative business environment for small-and medium-sized enterprises (SMEs) and making finance more accessible to underserved communities.
However, while this momentum is noteworthy, it is important that we propel it with intentionally. As custodians of social cohesion and regional development, cooperative banks advocate for greater emphasis on the principle of proportionality. This recognition is essential as we acknowledge that digitalisation alone will not replicate value of proximity or the benefits of human interaction.
3 Questions to Mr Mario Nava, Director-General of DG REFORM, European Commission
Mr Mario Nava is the Director-General of DG REFORM of the European Commission that he joined in 1994. Previously, he held 3 Director and 2 Heads of Unit posts in the DG for financial services. He was also President of Italian Financial Market Authority (CONSOB). He is active in research and teaching at Bocconi University (Milan) and at Solvay Business School (Brussels).
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- How does DG REFORM help Member States stimulate on a regional level sustainable growth and a business-friendly environment for small and medium-sized enterprises (SMEs) which are a core customer base of cooperative banks?
Leveraging on the resources of the Technical Support Instrument (TSI), the European Commission helps EU Member States to design and implement reforms in a wide range of policy areas, facilitating countries’ efforts to stimulate job creation and sustainable growth. Access to structural reform support is open to all public authorities, including regions and local entities, with whom the Commission, via the TSI, have a strong, long-standing partnership.
The TSI complements in a timely and effective way EU funds and policies, including the Recovery and Resilience Facility and the Cohesion Policy tools, mobilising additional resources and taking actions to ensure targeted support for the regions and local authorities. We have supported regions and municipalities through more than 150 reform projects over the period 2017-2023. To provide further support, in 2024 regional authorities will be able to request support in the framework of a dedicated flagship on “Overcoming barriers to regional development”. The Flagship aims to support regions, by providing technical expertise, to identify the factors holding them back and to define and implement appropriate strategies and processes to address these challenges in an integrated manner to boost their growth and development. The flagship focuses on 3 key dimensions for regional growth: 1. Improving the quality of governance and public services, 2. Strengthening productivity, innovation, and green transition, and 3. Harnessing talent and employment opportunities.
A business environment that is conducive to effective sustainable growth is essential to harness the potential of the 24 million EU-27 SMEs and their 85 million employees. Therefore, SMEs are at the centre of several technical support initiatives, some of which implemented at regional level, to foster an attractive business environment, increase competitiveness and facilitate access to finance.
For example, DG REFORM provided technical support to 4 autonomous communities in Spain (Andalucía, Extremadura, Navarra, and Madrid) under a multiregional project to overcome barriers to entrepreneurship and learn from good practices on how to foster innovation and entrepreneurial activity at regional level. Along the 2 years of the project, DG REFORM supported the authorities to develop 4 regional Action Plans for entrepreneurship and innovation along with the corresponding scoreboards to measure and monitor the progress of their implementation. The project also helped the authorities increase their capacities and acquire good practices from 6 other EU regions.
Another example of technical support to stimulate growth at regional level focused “Strategy for the development of entrepreneurship, innovation and digitalisation in Stara Zagora and a roadmap for its implementation” in Bulgaria. The project aims to contribute towards an effective and timely promotion of entrepreneurship, innovation and digitalisation in the region, which is heavily dependent on the mining industry and lacks clear economic and employment alternatives for the replacement of this industry. The project will also help authorities to identify trade and investment opportunities in the Stara Zagora region.
Furthermore, DG REFORM supports Sweden, Greece and Croatia to design and implement strategies to develop their islands’ economy, including advancing the green and digital transition, and improve citizens’ well-being. As part of the project, an analysis will be performed to identify the barriers to foster economic growth and productivity in the island territories. The resulting recommendations are expected to help promoting effective governance and improving the economic performance of the islands.
With specific focus on financial services, we also provided the autonomous Region of Andalusia with improved institutional capacity to design, develop and implement sustainable finance reforms. As a result of the project, Andalusia published its initial Sustainable Finance Framework in March 2021. Since then, it has issued EUR 2 billion of sustainable debt.
- To what extent is access to finance a driver for regional development and social cohesion, both impact values of cooperative banks, and how is this manifested in DG REFORM’s policies?
Individuals’ and enterprises’ ability to access financial services and products is essential to ensure the proper functioning and growth of the EU single market, as well as the latter’s capacity to withstand present and future challenges, bolstering long-standing, effective resilience. Finance is an enabler of economic expansion, competition, and sustainable growth, and it plays a key role in curbing income inequality by boosting demand for jobs, and in fostering research, development, and innovation. It is hence no surprise that access to finance is a key policy area where DG REFORM provides support to Member States.
In the last few years, demand for reform projects aimed at facilitating access to finance has steadily grown, also due to the magnitude of the challenges posed by the digital and green transitions: indeed, these require unprecedented public and private efforts to mobilise resources aimed at narrowing the gaps that might arise in our society and economy, including by making sure that economic and social cohesion is maintained throughout the different, diverse European regions. DG REFORM has been ready to intercept this demand, in particular by translating it into four intervention axes of reform support: first, by promoting the development of a strategic approach to capital markets’ progress, focusing on the drivers, pre-requisites and incentives enabling their growth, while also paying specific attention to the regional and cross-border dimensions; second, by supporting reforms aimed at enhancing insolvency procedures, whose efficiency is critical to attract cross-border investments, ensure the preservation of economic value through business cycles, and foster innovation; third, by facilitating the development of targeted financial education and financial literacy initiatives, which help citizens taking appropriate financial decisions and increase their confidence in investing; and, last but not least, by supporting public authorities towards the definition and implementation of comprehensive, targeted national sustainable finance policies, whose ultimate aim is to widen the availability of financial instruments and resources dedicated to the green transition. On top of these, DG REFORM cooperates with national developments banks to maximise the impact of their assistance to a wide range of stakeholders, reinforcing their strategic role in strengthening local economies and driving sustainable change in certain market niches.
- What role can banks, particularly cooperative banks, play in supporting the Commission’s reform policies for regional development and economy recovery, especially with a view to the green transition and the digital transformation?
Cooperative banks play a unique role in the EU financial system, being traditionally closer to local communities and needs; they are hence an important “ingredient” for enabling a successful green and digital transition, which are two of Commission’s top priorities, given their proximity and capacity to serve on-the-ground needs. As the twin transition occurs, there are at least three ways in which cooperative banks can support Commission’s efforts to promote regional development, close cohesion gaps, and enable recovery while establishing long-term, sustainable resilience based on a digitalised economy. First, by offering financial products and services designed to encourage SMEs and households to make saving and investment decisions that support a zero-emissions pathway, and adequately factor in broader societal and sustainability considerations, in line with the UN Development Goals. Second, by embedding ESG considerations within their risk management frameworks, so as to both adapt their business models and processes to the challenges of the green, digital and just transitions, and to strengthen their clients’ capacity to cope with them. Third, by investing in innovation and embracing the opportunities offered by new technologies, while appropriately bearing in mind the risks associated with their use within the financial value chain.
The Technical Support Instrument contributes to this ongoing transformation: it supports financial supervisory authorities in stepping-up their capacity to assess, monitor, and mitigate ESG risks, and to ensure proper compliance of financial and non-financial firms with the sustainable finance regulatory framework; it facilitates awareness raising with regard to sustainability issues; it increases financial sector authorities’ capacity in the area of digital finance, helping them to explore and manage the risks and opportunities attached to the use of advanced technologies, and its impacts on financial business models, products, and services, as well as on the supervisory functions themselves.
Second Opinion from Mr Jesús MÉNDEZ, Managing Director of Caixa Rural Galega
Mr Jesús Méndez has been Managing Director of Caixa Rural Galega since 2008, where he held several positions within the bank's commercial network and its core cooperative banking services. Currently, he is a member of the Board of Directors of Rural Servicios Informáticos (RSI) and Rural Grupo Asegurador (RGA). Previously, he was member of the Board of Banco Cooperativo Español and Vice President of the social board of the University of Santiago de Compostela.
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Caixa Rural Galega was founded in 1966 in Lugo, a small city set up by the Romans more than 2,000 years ago. Initially it focused on financing the agricultural sector, and step by step it expanded its activities to other sectors becoming a universal bank providing loans and other financial services to citizens, SMEs and public corporations, as well as offering a wide variety of insurance and investment products to its members and customers, supporting them in their everyday needs.
It is a small local banking entity with total assets of 2,000 million Euros, whose activity is developed exclusively in the region of Galicia. The banks’ deep knowledge of members, customers and territory enables them to quickly respond to local needs, fostering regions’ growth and sustainable development.
Long term vision and reinvestment of profits are key drivers for the entity. Additionally, the entity is committed to Galicia, allocating 10% of their profits to a dedicated fund for activities that generate positive impact on the community.
Caixa Rural Galega is concerned about the issues of the region where they develop their activities. Being Galicia an aged region with an extremely dispersed population, it needs tailored solutions that Caixa Rural can provide. Being local and having the decision centres close to the reality of the territory accounts for their member and customers’ trust, enabling them to provide tailored solutions. Bigger commercial banks usually don't pay much attention to the local issues of these territories, which means there is a real need for local banks like Caixa Rural Galega - it has never yet closed any branch or reduced opening hours to the public. At the same time, Caixa Rural has generated high quality jobs outside of larger cities, thus, promoting steady employment and fostering sustainable growth.
But being local and small does not equate to being outdated. Small local bank’s members and clients expect the same level of digitalisation, highly specialised services and personal attention as any other.
To this end, being a member of an Institutional Protection Scheme (IPS) provides Caixa Rural Galega with infrastructure and IT services through its IT company allowing us to offer the latest digital services. Pointing to the important role of cooperative networks in providing centralised support to their members to ensure quality of services.
On the other hand, however, Caixa Rural Galega considers regulation to lack sensitivity to its specific features and that the principle of proportionality seems to have lingered in a few letters written on a piece of paper with little practical application. Small entities play a fundamental role in the financing SMEs and citizens, and we demand greater recognition from public administrations. The approach “One Size fits all” is not the solution.
Caixa Rural Galega has managed to maintain profitability despite the negative interest rates over the recent years that have made banking activity extremely difficult. This cooperative bank, unlike other larger banks operating in Galicia, has not closed any branches (47), which has allowed it to substantially increase its market share.
I am utterly convinced that small local banks have a future in this globalised world as long as they are capable of answering to emerging challenges. In this context, it is essential to be able to adapt to changes as they occur and assume the most demanding governance standards. Up to today, cooperative banks have successfully managed to overcome all their problems without public aid, and I am optimistic, in our closest environment, that this will continue to be the case in the future.