The European Voice ofSavings and Retail Banking
SAVINGS AND RETAIL BANKING:A UNIQUE, LOCALLY DRIVEN MODELTHAT HELPS UNLEASH REAL ECONOMYGROWTH AND CREATE JOBS November 2016
Policy Perspectives 2016-2017
TABLE OF CONTENT
FOREWORD 3
OUR PROPOSALS 4
1. LOCAL BANKING: BANKING ON DIVERSITY 5
2. LOCAL BANKING: RESPONSIBLE APPROACH 6
3. BETTER REGULATION: PROPORTIONALITY MINDSET 7
4. 21ST CENTURY BANKING: THE DIGITAL WAVE,
ADAPTING TO CUSTOMER NEEDS 8
5. FINANCING SMES: REAL JOBS, REAL GROWTH 9
6. LOW AND NEGATIVE INTEREST RATES: THE “BIG CHILL” 10
SAVINGS AND RETAIL BANKING:A UNIQUE, LOCALLY DRIVEN MODELTHAT HELPS UNLEASH REAL ECONOMYGROWTH AND CREATE JOBS November 2016
Policy Perspectives 2016-2017
FOREWORD
Just like other financial institutions, savings and retail banks have to cope withthe challenge of digitisation, with an avalanche of new regulations and a low-interest rate environment that hampers profitability. But unlike other institutions,savings and retail banks remain close to their customers to form the financialbackbone of their regions and countries.
Indeed, during these times of change, every effort is being made by Europeansavings and retail banks to contribute to economic growth and job creation whileremaining close to their customers. Building on the banking model’s self-helproots, ESBG members remain at the forefront of social welfare and peoples’needs through banking and foundation work. They serve local communitiesincluding households and small and medium-sized businesses. To continue doingthis, it will be essential that regulations apply the principle of proportionality.That means adhering to the European Commission’s stated principle on smartregulation: “meet policy goals at minimum cost and deliver maximum benefits tocitizens, businesses and workers while avoiding all unnecessary regulatoryburdens”.
As a financial catalyst for small and medium-sized companies – the backbone ofthe real economy – the savings and retail banking model is closely in-line with theEuropean Commission’s agenda for EU growth and jobs. There is pressing needfor policymakers to better understand and acknowledge the core role played bysavings and retail banks to help local economies continue to develop and thrive.
Isidro FainéChairman of CaixaBank
Chris De NooseESBG Managing Director
OUR PROPOSALS
LOCAL BANKING:BANKING ON DIVERSITY
LOCAL BANKING:RESPONSIBLE APPROACH
BETTER REGULATION:PROPORTIONALITY MINDSET
21ST CENTURY BANKING:RIDING THE DIGITAL WAVE,
ADAPTING TO CUSTOMERNEEDS
FINANCING SMES:REAL JOBS, REAL GROWTH
LOW AND NEGATIVE INTERESTRATES: THE “BIG CHILL”
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LOCAL BANKING
BETTER REGULATION
JOBS AND GROWTH
1. LOCAL BANKING:BANKING ON DIVERSITY
Europe’s banking landscape should bediverse, with a strong focus onbanking services that are locally based,retail-oriented and that service thereal economy – households, localauthorities and SMEs alike.
Diversity in the banking sectorenriches local employment markets
A diverse set of banking business modelsacross the EU is beneficial to competition,enhances overall banking systemefficiency, and helps the system overcomeshocks. The manifold structure of theEuropean banking sector now in placeencourages banks to compete, improvingtheir processes and structures to betteradapt. A diverse banking sector fosters a
European social and economic model that combines economic growth with high living standards and good workingconditions.
Diversity: Ensuring a full range of services for consumers and SMEs
Diversity ensures that a full range of services can be offered to customers, in particular by banks that focus on SMEsand households. Savings and retail banks continue to build up know-how on the ground to better understandcustomer needs.
Supporting a single market, in respect of subsidiarity
A diverse, single market for Europe should adhere to the principle of subsidiarity, whereby the European Union onlyacts when individual EU member states cannot effectively do so.
Close-to-customer, rooted in the community
A diverse banking landscape helps foster proximity: a cornerstone of the savings and retail banking model that placesfocus on serving local communities and forging close-to-customer relationships. Adhering to high ethical standards,the 810,000 people employed at savings and retail banks look for innovative ways to serve their 190 million customersthrough different channels: bank branches, online banking and mobile apps.
Banking supervision adapted to banking model diversity
A more nimble, well-crafted approach to banking supervision would open-up the full potential of the savings andretail model to serve the real economy. It presents a chance to rebuild trust in the safety and soundness of the EUbanking sector.
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2. LOCAL BANKING:RESPONSIBLE APPROACH
Tailor-made and affordable services are thecornerstone of responsible banking.
Savings and retail banks: Real responsiblebanking
The savings and retail banking model, which includessmall and medium-sized banks located in cities andrural areas alike, always looks to maintain close clientrelationships and responsibly serve local communities.
Ingredients for a more sophisticated, better EUsingle market
Cross-border banking means interoperability ofe-identification tools, updating certain anti-moneylaundering (AML) rules, and more simple information
obligations. A clear framework on data flow and data storage as well as measures to foster digital inclusion couldalso help achieve a robust EU single market.
Access to financial personal advice should be preserved
Local banks are in a strong position to provide high-quality, personalised advice to customers throughout their lives,as they build a life-long relationship with customers and know the situation faced by them. Financial advice is bynature highly complex and should be carefully tailored to the specific needs and characteristics of the individual client.Automated advice may be appropriate in some cases but customers should maintain the right to receive personaladvice and banks the right to provide it.
No-cost investment services needed
Provision of investment services to retail customers free of charge should be maintained. Facilitating access to high-quality advice to the most modest of their investors is a crucial element for savings and retail banks. The EuropeanParliament and the Council acknowledged this when they discussed the MiFID II Review and ultimately decided tomaintain the inducements model.
Unleashing green financing
The commitment by G20 and EU leaders to make bank financemore environmentally friendly is welcomed by ESBG members.The European Commission's plan to set up an expert group toachieve this in Europe is a needed step. Locally-focused ESBGsavings and retail banks are ideally placed to help unleashgreen finance and are committed to promoting it. ESBG andits members invite the Commission to tap into our members'real-economy expertise when convening the expert group toensure a full look at diverse aspects of financing at local level,in particular households and SMEs.
SAVINGS AND RETAIL BANKING: A UNIQUE, LOCALLY DRIVEN MODELTHAT HELPS UNLEASH REAL ECONOMY GROWTH AND CREATE JOBS
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3. BETTER REGULATION:PROPORTIONALITY MINDSET
Consistent policy goals remain a challenge forthe European Union. One stark example is howEU policy bodies’ stated goal that more growthshould come from the real economy is in starkcontrast to the recent wave of regulation that ishaving an adverse effect on locally focusedbanks’ ability to lend more to small businessesand households. EU rulemaking needs to bebased on diversity, subsidiarity and proportionality.
Proportionality: a mindset
Proportionality is about balancing the costs andbenefits of regulation. If regulation is disproportionatein relation to its objectives, costs are likely to exceedthe benefits. The high-level and technical
recommendations contained in the December 2015 report on proportionality released by the Banking StakeholderGroup of the European Banking Authority should be largely taken on board as they provide an important referencefor promoting the Principle of Proportionality in all aspects of regulation.
A case for applying proportionality principle
It is crucial that current and new legislation is applied in a proportionateway to all financial institutions, taking into account their size, complexityand the type of business model they follow. Each piece of legislationshould be assessed on a case by case basis, as there is no simple set ofcriteria which can be used to apply the principle of proportionality.Locally-focused, less-complex financial institutions need to be able toprovide the wide range of services in the regions in which they operate,providing access to finance to SMEs and support to private individuals.
Proportionality and reporting
An area where the principle could be better applied is reporting.A proportionate approach to reporting would allow authorities to obtainthe information that they require to accurately evaluate financialinstitutions, regardless of their business model, without enforcing anunnecessary cost on those banks.
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4. 21ST CENTURY BANKING: THE DIGITAL WAVE,ADAPTING TO CUSTOMER NEEDS
Digitisation is changing the way banksserve people. From the traditionalbranch bank model to online andmobile, savings and retail bankscontinue to adapt. They seek to evolvealong with their customers, cateringto their current and furture needs.They also look for the best innovationsin the financial sector. Policy can helpthat transition by providing aframework that boosts innovation,not hampers it. Policy addressing theuse of data should keep the consumerin mind.
Meeting the digitisation challenge
Keeping pace with the accelerating speedof digitisation is a challenge for all
companies and regulators, but it offers an unparalleled opportunity to increase the customer proximity that hasalways been a part of savings and retail banking. Digitisation changes how customers and banks communicate witheach other. Physical branches will become less essential to processing customer transactions. But their role will changeas they become the centre of intensified high-quality customer advisory service.
Fintechs: the new entrants
The digital “New Normal” also means that savings and retail banks are being joined by new entrants without thesame regulatory requirements, including Fintechs, peer-to-peer lending and crowdfunding platforms. There is aworrying tendency to adopt light-touch regulation to them, whilst leaving incumbent savings and retail banksstrapped with heavy regulation. A level playing field should be sought while being cautious not to stifle innovationand ensuring consumer protection is taken seriously.
Shopping for retail banking products without limits
Certain measures such as the interoperability of e-identificationtools and the simplification of information obligations can boostcross-border financial business. European and national lawscontain a confusing and increasingly complex web of consumer-related information requirements. To boost trust in cross-bordershopping of retail financial products and services, consumersneed more clear, simple and transparent information to makethe best possible purchasing decisions.
Needed: Regulatory framework for data flow and Europeancloud
A regulatory framework is needed to address data flow.To avoid distorting competition, third companies should nothave mandatory, free access to client data which a company hascollected on its own.
SAVINGS AND RETAIL BANKING: A UNIQUE, LOCALLY DRIVEN MODELTHAT HELPS UNLEASH REAL ECONOMY GROWTH AND CREATE JOBS
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5. FINANCING SMES:REAL JOBS, REAL GROWTH
Strengthening banks’ ability to lend will help theEU economy grow. Bank lending representsthe core source of financing during the startand expansion of a small and medium sizedbusiness.
Enabling small and medium-sized retail banksin Europe – along with SMEs
The European Commission has rightly put growthand jobs at the top of its political agenda. Reachingthat goal will hinge on small and medium-sizedenterprises. Ideally placed to benefit from this statedgoal, SMEs account for 99 per cent of businesses inEurope and employ two-thirds of the private-sectorworkforce. Savings and retail banks have a special
role to play by working with and helping SMEs during all stages of their development – from creation to scale upto maturity.
Savings and retail banks: €500 billion in SME financing
ESBG members provide a half trillion euros in loans to SMEs in Europe, roughly the value of Sweden’s economic grossdomestic product. The impact is felt at local and Member State level. For example, the members of the GermanSavings Banks Association account for 42.6 per cent of the market share amongst SMEs in Germany. In France, ESBGmember Groupe BPCE is the top bank for SMEs within the hexagone, with a 38 per cent penetration rate. In Spain,60 per cent of small and medium-sized enterprises are ESBG member CECA’s customers.
Capital Markets Union and bank lending
Since the launch of the Capital Markets Union by the European Commission, focus has been drawn to how best toboost SMEs’ access to capital markets finance to offset the post-crisis drop in bank lending. Retail and savings banksview the role of capital markets differently, however, seeing themas a complement to bank lending – not a substitute. For plenty ofgood reasons, loans from a local bank is by far the most preferredsource of external finance of SMEs. Beyond capital markets,risk treatment of SMEs’ exposures, synthetic securitisation andguarantee schemes are important areas to expand the SMEfinancing toolbox. Policy can help by taking into account savingsand retail banks’ specific nature, which are vastly less complexand committed to SMEs clients. The U.S. Census Bureau 2012Survey of Business Owners shows that SMEs have a healthyappetite for debt financing through banks in the United Statesfor business creation and expansion. This mirrors SME demandfigures for bank financing in the European Union.
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6. LOW AND NEGATIVE INTEREST RATES:THE “BIG CHILL”
Banks are on the front line when it comes tolow and negative interest rates, and theircustomers are paying the price for thrift.A ‘chilling effect’ is being felt, which hurtsthe savings and retail bank model that lendsmore than €500 billion to SMEs – the backboneof the EU economy.
Need exists to continuously reassess the stanceof monetary policy
Monetary policy will need to be normalised as soonas possible. Extremely low and negative interestrates are burdensome for retail clients and SMEs.Concerns have been raised that side effects fromthis policy path may surface more and more, such as
bad investment decisions, speculation bubbles, distribution effects and financial stability risks.
Negative rates gnaw away at savings, punishing thrift
Low and negative interest rates are gnawing away savings of households, who deserve to be spared from furthertroubles ahead. Financial asset values being chipped away are mostly held by private households and SMEs in the formof bank deposits and government securities. Designed to stimulate demand and encourage lending, low and negativerates imposed on depositors might simply cause just the opposite reaction, based on the general feeling that the crisisdrags on and low future expectations for bright outlook occur. Increasing the incentives to hold cash rather thandeposits will have adverse consequences for the economy and society as a whole.
A risky game: higher-risk investments, inflation
In a context of low interest rates, investors are likely to search for yield by adding risk to their portfolios. This couldlead to an under-pricing of risk and undermine financial stability in the longer term. Expansionary monetary policycould also fuel a future rise in inflation levels, a potential blow to household budgets and standard of living.
Menacing tight margins a threat to locally focused banking
Locally minded ESBG member banks, whose 60,000 outlets serve around a third of the retail banking market inEurope, are especially concerned about the savings problem. Negative interest rates represent a serious threat to theirlocally driven business model due to increasingly razor-thin interest rate margins. Seeking deposits as a primary sourceof funding, banks also see ultralow and negative rates putting further pressure on already trim operating costs.
SAVINGS AND RETAIL BANKING: A UNIQUE, LOCALLY DRIVEN MODELTHAT HELPS UNLEASH REAL ECONOMY GROWTH AND CREATE JOBS
ESBG and its members in a few key figures
810,000 employees
190 million customers
500 billion euro SME Financing
60,000 outlets
1,000 savings and retail banks in the ESBG membership
7.1 billion assets
3.5 billion in non-bank deposits
3.7 billion in non-bank loans
ESBG – The Voice of Savings and Retail Banking in Europe
ESBG brings together nearly 1000 savings and retail banks in 20 European countries that believe in a common identityfor European policies. ESBG members represent one of the largest European retail banking networks, comprisingone-third of the retail banking market in Europe, with 190 million customers, more than 60,000 outlets, total assetsof €7.1 trillion, non-bank deposits of €3.5 trillion, and non-bank loans of €3.7 trillion. ESBG members come togetherto agree on and promote common positions on relevant regulatory or supervisory matters.
Learn more about ESBG at > www.wsbi-esbg.org
ESBGRue Marie-Thérèse, 11 n B-1000 Brussels n Tel: +32 2 211 11 11 n Fax: +32 2 211 11 [email protected] n www.wsbi-esbg.org
Published by ESBG. © November 2016
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