Basel II and revision of the Capital Requirements Directive (CRD 4) (debate) 
President
The next item is the report by Mr Karas, on behalf of the Committee on Economic and Monetary Affairs, on Basel II and revision of the Capital Requirements Directive (CRD 4).
Othmar Karas
Madam President, Commissioner, ladies and gentlemen, with this report on Basel III, the European Parliament has a clear position on the deliberations of the Basel Committee. We would like to draw attention to the unresolved questions and problems that Europe faces, and we are putting before the Commission a collection of demands for the drawing up of the draft directive. Although - and I would like to thank all the shadow rapporteurs in this regard - this report was adopted by 38 votes to 0 in the committee, I nevertheless feel a need, as rapporteur, to table six additional amendments, three of which relate to developments occurring in the meetings of the Basel Committee, in order to bring the report up-to-date, and three of which relate to the leverage ratio and to the liquidity standards.
We believe that it is not propitious to automatically incorporate the leverage ratio into Pillar 1 from 2018 but that there should instead be an evaluation process first. Secondly, there are a few unresolved issues in Basel in relation to the liquidity standards that need to be addressed to keep us up-to-date.
I am a little bit amazed by the nine EU Member States in the Basel Committee, as they have allowed the process to be deemed completed despite the fact that we fail to see how there is a level playing field between the economic structure of the United States and the European economic and banking structure, and between classical retail and investment banking. Furthermore, we still do not have a definition of liquidity.
The economic crisis, of course, demonstrated that we need a change of framework. It is therefore right to get to grips with this issue and to bring forward proposals. However, the crisis also clearly demonstrated that what we had was primarily a crisis of liquidity and not one primarily of capital resources, although we do need increased capital resources - one only needs to think of Lehman Brothers, where only 11% capital was held, to see that.
From our point of view, there are five unresolved issues. The first is that there is no study into the impact of the figures that have now been agreed for growth and employment in the European Union. I would ask that the Commission produce and submit such a study as a matter of some urgency. Secondly, we have not examined in detail the cumulative effects of all the regulations that we are currently considering. Key examples here would be Basel III, deposit protection, the bank levy and the transaction tax, amongst others. Thirdly, there is no level playing field between the EU and the United States, for example, when it comes to accounting regulations, and there is still no agreement with regard to the time frame for implementation. Fourthly, there is no level playing field between retail banks and investment banks in the definition of capital. Fifthly, there are unresolved issues such as those of the leverage ratio, the definition of liquidity and the role of rating agencies in the light of the decisions the United States has made.
These issues need to be resolved before the Commission brings forward a draft directive and they should not be concluded by the G20, but clarified, before being finalised by the Basel Committee. We will stay on the ball.
Michel Barnier
Madam President, Mr Karas, ladies and gentlemen, just a few days after the agreement reached in the Basel Committee, I think that it is very important that Parliament is demonstrating its commitment to banking reform and clearly showing that Europe behaves and must behave in a way appropriate to its global standing. I would like to thank Mr Karas and the members of the Committee on Economic and Monetary Affairs for their commitment and for this excellent report.
Mr Karas, you raise a number of critical points which will be studied very carefully before the adoption of our proposal for revision of the Capital Requirements Directive next spring.
I first want to say that I share your view, Mr Karas, on the importance of problems which are specifically European - our banking economy in Europe does not resemble those of the other regions of the world in all areas - the necessity, Mr Karas, of an in-depth impact assessment and the need to maintain a level playing field at international level.
We must, of course, stress that increased capitalisation of the banks is a necessary precondition for making the financial sector more stable and strong, but it will not be enough. As you know, ladies and gentlemen, since you are working on it, we must also have stricter supervision, stronger corporate governance, supervision of speculative financial activities and a framework for crisis management and for resolving banking crises. That is our road map. Thanks to you in particular, much progress has already been made in this direction. I am thinking of the supervision agreement and the Green Paper on the governance of financial institutions.
The Commission, for its part, is doing its job, and it will do it in such a way that by the end of next spring, we will have submitted to you and to the Council all the texts that are expected of us for implementing the recommendations of the G20. It is in this spirit that, a few days ago, I presented the draft regulations on derivatives and on short selling. In a few days, we will put forward a new document on the bank resolution and crisis management tools.
Returning to today's debate, however, I would like to discuss three issues, with regard to which I share Mr Karas's concerns. The first is the recognition of capital instruments issued by cooperative banks, or mutuals, under the definition 'tier one capital'. The agreement reached in Basel will allow us to take account of the specific circumstances of these unlisted banks, which play an essential role in financing European businesses. My services are now working with experts from the Member States on defining the technical arrangements for properly implementing these new principles in European legislation.
Second, as regards the rules on liquidity and the definition of 'liquidity buffer', the Commission is fully aware of the problem raised in particular for Denmark and Austria. Indeed, the very serious concerns expressed by the Commission in this context are the very reason why an agreement has not yet been reached on this issue. We had some reservations, and my services will continue to work with our partners in Basel to find a solution, particularly as regards the recognition of covered bonds.
The third point concerns the leverage ratio. We cannot go back on our commitments made at the G20 on this point. We are, however, satisfied with the agreement reached in Basel, which makes the leverage ratio part of Pillar 2 during a reporting period, as Mr Karas said a moment ago, the aim being to transfer it under Pillar 1. This transfer will not be automatic, and we will integrate a revision clause on this subject into our draft proposal for CRD 4.
I would now like to say a few words on the implementation of the Basel Agreement in the European Union. This financial crisis has shaken the world. It has taught us some lessons, which we must take on board. The global prudential rules were not suited to real-life conditions. In addition to the reforms which have already been implemented in order to strengthen the existing rules, we now have the agreement recently drawn up in Basel by the group of governors of the central banks and those responsible for banking supervision.
In my view, this agreement is good news. It is an important step in strengthening the rules and global financial stability, and this new Basel Agreement will help to establish common rules for the banking sector internationally, which is extremely important. This agreement also paves the way for a balanced solution: businesses benefit from an adaptation period providing sufficient time to meet these new requirements, which will allow for the health of the banking system to be gradually improved without, we think, compromising economic growth.
Ladies and gentlemen, my services, my colleagues - whom I want to thank - have done a great deal of work in Basel to find common ground with our non-European partners. I hope that the Heads of State or Government of the G20 will approve this new Basel Agreement during the forthcoming Seoul Summit in November. However, we will not stop there.
The next step will be to reform the basis of the banking system at Union level. We always take the specific circumstances of our Union into account when implementing international rules, and, ladies and gentlemen, the CRD 4 Directive will be no exception; here, too, we will take the specific circumstances of the European Union into account. Furthermore, in this context, we will specifically carry out the macro-economic and micro-economic analysis which forms part of this Basel Agreement, and you and your colleagues will naturally be informed about it, Mr Karas.
Our aim is to adopt the proposal for a directive during the first quarter of 2011. This means that the Member States need to transpose it before 1 January 2013. That will give them enough time to conform to these new provisions.
We must nevertheless remain realistic. This agreement reached in Basel constitutes very significant progress, but I repeat: there is still much to be done. We will work together with you and with the Member States in the coming months to implement one of the essential reforms of the post-crisis period. I would like to be very clear on this point too: we will be very attentive and very vigilant when it comes to ensuring that our main global partners - above all, the Americans, but not only them - also implement this essential reform correctly and in due time. This is an issue which I shall raise during my second and very imminent visit to the United States, at the end of this month.
Finally, I agree with you, Mr Karas, that it is essential for the European Parliament to play an even greater role in this process. That is why, in conclusion, I pledge to keep you - your committee and the plenary session - regularly informed of all future developments within this Basel Committee.
Jean-Paul Gauzès
Madam President, Commissioner, I would like to start by briefly praising Mr Karas' excellent work. I was one of the people who were in favour of an own-initiative report being produced before the Commission makes its proposals on the framework for transposing the Basel Agreement, and I am delighted that the work done by Mr Karas with the help of the various shadow rapporteurs has highlighted the main points for consideration.
I will not repeat them here, Commissioner, and of course I welcome the points you make and your determination to ensure that this regulatory framework is effective and workable and above all that it creates no distortion of competition at international level.
To move on to a different subject, I cannot help noticing that there is often a big difference between the statements that are made publicly and the commitment to these in practice. I also note that countries outside the European Union, and I am thinking of the United States in particular, have an irritating tendency to make value judgments about how we operate, whilst they themselves are not putting the systems into practice as they ought.
As regards Basel, it is vital that European companies are dealt with on an equal footing and are not penalised more than US companies. In the United States, few banks are taking notice of these directives or of the Basel Committee and, at present, nothing is actually being put into practice. I would hate to see the provisions adopted in June to regulate US finance - the statements made about these exaggerate their real impact - being used as a legal basis for not applying the provisions which might be introduced by bodies outside the United States.
Commissioner, I trust in what I know to be your total determination and vigilance to ensure that this does not lead to a distortion of competition for the French banks, the European banks, and for those who finance the economy in general. It is right that we should be steering the banks back towards their primary role of financing economic development, but we must make sure that they are not penalised disproportionately.
Udo Bullmann
Madam President, ladies and gentlemen, let me just point one thing out before I start. The Basel Committee is a group of more or less intelligent central bankers and overseers, but it is certainly no infallible council of wise men and it is definitely not the law. This House is the legislative body - Commissioner, you know that, and we know that you do - and this legislative body will pay close attention to what is put on the table and, where it makes sense, to what is put on the table here, too.
Clearly, we do want the rules on capital requirements to be tightened up. How could we not want that, in the wake of the economic crisis in which we still find ourselves? 20 to 30% of the gross national product of our national economies are in pawn as the rescue package for the banks. The people expect us, of course, to make respectable banking rules so that we do not find ourselves in a crisis like this one again. Clearly, we want there to be counter-cyclical elements in this banking safeguard like those, for example, that have already been proving their worth in Spain for years. Although there, too, they had to be implemented in the face of opposition, they are paying off today because they were implemented at an appropriately early point and they did not make the banking system worse; they made it more robust.
There are key issues, though, and I am truly grateful to the rapporteur, Mr Karas, for having put these key issues at the heart of his own-initiative report, which we find ourselves absolutely and totally able to support. The first of these is that, yes, indeed, we do need an impact study, specifically a complex impact study that makes it clear what the impact is, for one thing, on the financial sector in all its parts but also, of course, in particular, what the impact is on the real economy. What is the impact on the issue of what the future actually holds for loan financing conditions for small and medium-sized enterprises?
The second issue is that we need the certainty that this time, unlike in the past, the agreements will also be implemented in other territories. We need to know that before we legislate, as otherwise there will be a new asymmetry for which we cannot be responsible.
The third issue is that there can be no discrimination in terms of legal forms. Those forms among the diversity of the European banking system that particularly proved themselves during the financial crisis - and that means those banks that looked after the small and medium-sized business sector and those banks that were focusing on private customers and thus did not elicit cross-border risks - must not be penalised for the solidarity of their establishment. The proposal on the table at the moment does not do enough to ensure this. We therefore believe that the proposals need to now be improved and that we need to consider how we can tackle this issue in practical terms. Public banking overall is of major value, provided it can be run on a sensible basis. We do also need to ask - and I am thinking here about silent partnership reserves - how this will actually be effected in future, if we buy the regulations as they are envisaged in Basel. This cannot be the last word, nor is it the final version that we will accept.
The capital instruments need to be measured in order to see the extent to which they ensure consistent quality without false provisos, are available to absorb losses, are durable and flexible in terms of payment, as the rapporteur also argues in his report. It is a reasonable starting position for us to take. We want the leverage effects to be limited and reasonable allowance to be made for the different risk profiles. We will examine your proposal, therefore, Commissioner, and we hope for the best of cooperation with Parliament.
Sharon Bowles
on behalf of the ALDE Group. - Madam President, can I say to the Commissioner that when we voted on supervision, I said our legislation was like Swiss cheese, full of holes, places where the common rule book would not reach.
Then, last week, bankers from around the EU assembled for Eurofi, discussing Basel III. The word on everyone's lips was 'national': national flexibility, national rules, national rules, national exemptions; the beast of perverse incentive was rampant. As soon as a framework is agreed for harmonisation and stability, the wriggling and the wheedling to make holes starts, and frankly, it is no better here. I am fed up of it. Why does Europe have to be the cry-baby of Basel? This is not what we intended with the supervisory architecture. It is not what is intended by Basel III. The facts are clear. G20 was clear. Banks must be able to withstand the type of crisis that we have just had and capital is crucial to that.
I am not blind to the problems of the real economy and the need for banks to lend and, like others, I look forward to the macro-economic and cumulative impact assessments, not just of Basel, but of the whole post-crisis financial regulation that you, Commissioner, and Commissioner Rehn both promised me in your competency hearings.
To the banks, I say: we cannot give weight to your protestations while your aggregates are cloaked in secrecy and you stamp 'Confidential' on everything. So as far as I am concerned, the extended timetable of Basel is enough slippage: no more.
Now, Commissioner, liquidity measures - as others have said - are not fully resolved, and I do fear more perverse incentives around the growing concentration on sovereign debt and short-term instruments. We must be very careful here; we must think and not replicate the same measures in every piece of the prudential regulation where they may not be appropriate and would destroy investments in equities and the real economy.
Philippe Lamberts
Madam President, Basel III is supposed to be a starting point and under no circumstances must it be the furthest that the European Union is willing to go. To those who say that if we go further than Basel, we might jeopardise the competitiveness of our banks on the international scene, I say that our primary concern is, and should be, the viability of our economy. And if that means more stringent rules, then so be it. I would also add that we hear so much about a level playing field, and yet the United States does not hesitate to go it alone whenever it can and when it suits it to do so. Therefore, I do not want to see Europe simply waiting for some kind of consensus that will never materialise.
Secondly, any transition period must necessarily be time-limited, and I can tell you that the eight years we are envisaging for ourselves is too long. What is more, and this is not something that has been factored in, during this transition period, strict conditions must be introduced regarding the payment of dividends and bonuses. We would find it indecent and unacceptable if, whilst the banks are claiming that it is difficult to build up the capital reserves imposed under the new rules, their shareholders and managers continue to help themselves from the kitty.
My final message is directly for the banks. To those banks that complain that they will no longer be able to make the same profits they made during the golden years, I say that all businesses working in industry or retail in the real economy are having to make do with net yearly profits of between two and five per cent - and that is nothing to be ashamed of. It is time to realise, therefore, that the party is over.
Vicky Ford
on behalf of the ECR Group. - Madam President, I am very aware that the economic crisis is far from over and that we do need lending in the wider economy. However, last week, we saw in Ireland that banks are still coming to the taxpayer for their bailouts.
We cannot continue to have the taxpayer bailing out banks. We need banks that are prepared to take risks, but they need the capital and liquidity to live within their means when those risks go wrong. This is a complicated piece of work, and one for which I would like to thank Mr Karas, but it is only part of the work, and we need the right resolution mechanisms too.
It is very clear from the number of amendments across the floor that MEPs want to look at the detail and at the impact. We must make sure a similar approach is taken to the collateral in the derivatives language. First of all, there is an impact assessment - it was done for Basel - but it is so cloaked in confidentiality that we cannot see it. Let us release it and use it.
When we make an international agreement, we need to make sure that it is implemented globally - not just here and in Wall Street, but globally. There are a number of places in this text where there is wriggle-room - paragraph 24, on minority interests and deferred taxes, paragraph 40 with its description of Pfandbriefe, and the new paragraph 43A.
Yes, Basel should look at networks of small banks supporting each other. They are doing that. However, my interpretation of the English is that we could, in some way, be seen to be pre-empting their conclusion.
Furthermore, it has been agreed that there will be a migration towards a full and binding leverage ratio. Let us not move away from that. I agree that, where we have good local practices, we should allow them to continue, but let us examine those in public and not bring in exemptions through the back door. The market will just assume that back door to be a way of promoting bad practices, rather than promoting good practices.
Astrid Lulling
(FR) Madam President, I would like to start by thanking our rapporteur, Mr Karas, for his excellent work, and I fully support him in his approach to this complex matter. However, I feel it is important to use my two minutes to emphasise an issue which was mentioned in the report but which deserves a closer look. I refer to the matter of mortgage bonds, or Pfandbriefe in German, in the context of liquidity standards.
The new European liquidity standards that we are working towards redefining should give greater recognition to their special economic, legal and operational nature. Mortgage bonds are used for long-term financing and investment in the wider economy. However, the Basel Committee's current proposal regarding these bonds would have a negative and disproportionate impact on Europe's economy compared with other major economic zones, such as the United States.
I certainly welcome the fact that the agreement reached by the Basel Committee on 26 July 2010 recognises mortgage bonds as highly liquid assets in the context of calculating the liquidity coverage ratio. However, I call upon the Basel Committee and on the Commission, Mr Barnier, to give greater recognition to this financial instrument, with a view to promoting sufficient diversification of the eligible liquidity buffer assets and avoiding any distortion in the markets. This low-risk financial instrument must be given an environment in which it can thrive.
Anni Podimata
(EL) Madam President, we all know that today's debate on the agreement reached by the Basel Committee is yet another step dictated by the recent crisis, a crisis which dramatically highlighted the shortcomings and weaknesses in the regulation and supervision of the financial system, reversed what had, until then, been the prevailing doctrine of deregulation of the markets, and highlighted the need for stricter rules, both on capital adequacy and on the supervision of financial institutions.
Against this background, the Basel Committee has reached an agreement which includes certain basic principles and changes which need to be made to capital adequacy rules in order to improve the safeguards to the banking system. As far as the implementation of this agreement in Europe is concerned, Mr Karas's report highlights numerous important aspects which need to be taken into serious account, such as the peculiarity of the European market, on which 80% of lending is based on bank credits, the need to democratise the Basel process with more active participation by the European Parliament, among other things, and, of course, the proposal to include all euro area sovereign debt as high quality liquid assets, regardless of their credit rating, so as to reduce the impact of rating agencies.
However, I wish to repeat that the new capital adequacy measures are a minimum review and still need more general reform over a longer time frame. Europe, as the Commissioner said, has already taken an important step in adopting the new European system of supervision. We are changing tack and promoting enhanced coordination as a basic preventive tool. However, we must not stop there. We need to take further steps by introducing a supervisory and regulatory framework for agencies which have hitherto been operating without controls, such as credit rating agencies and alternative funds.
We need, at the heart of the proposals which you recently presented, Commissioner, to adopt rules to regulate transactions which are highly obscure and, as such, subject to increased systemic risk, such as the market in over-the-counter derivatives and naked options. Finally, Commissioner, as you referred to the G20 summit in Seoul, we need to lead efforts to introduce a tax on financial transactions, not, of course, to take revenge on or punish the banks, but to limit speculation and send a strong message to the citizens of the EU who are currently paying the price of the crisis, that we expect a fairer distribution of the burden.
Wolf Klinz
(DE) Madam President, ladies and gentlemen, if banks have to hold more capital for loans and financial instruments, that increases their ability to bear losses. The most recent proposals from the Basel Committee take this stability-based approach as their basis. Unfortunately, the Basel Committee has not, as yet, satisfactorily addressed the problem of system-relevant banks. I therefore welcome Mr Karas's call for the requirements for the liquidity standards to be made independent of system-relevance. In other words, appropriately tougher requirements need to apply to banks that, due to their size or interconnectedness with the global financial system, need to be bailed out using taxpayers' money in crisis situations.
We should take a more differentiated approach to the factor of debt leverage. Only when it is empirically proven that this instrument does not lead to arbitrage and distortions of competition and actually counters the overheated granting of loans should we consider permanently incorporating it into the first pillar.
There is a need, in any case, for these proposals to be implemented at the global level. We cannot allow the US authorities to have a decisive influence on the Basel proposals only to not then implement them. The G20 summit in Seoul next month will show whether, and to what extent, we can achieve this objective.
Sławomir Witold Nitras
(PL) Madam President, firstly, I would like to say I am very pleased that the European Parliament has taken up this matter, especially because this report arose at Parliament's initiative. I would like to congratulate Mr Karas very warmly.
In the last decade, we have seen unprecedented development in the different types of financial innovation and new instrument available. It is often these instruments, in fact, which determine the nature of the market today. I think that an essential condition for effective supervision is, in this situation, to be in possession of truly reliable knowledge about what is happening in these markets. Meanwhile, the financial instruments which have become so popular have reached a degree of complication which significantly hinders supervisors in making an appropriate evaluation of the risk associated with them.
Besides these new instruments, we have to be aware that the market is changing and is globalising very rapidly, and that in the confrontation between the globalised, evolving market and national supervisors, these instruments are completely inappropriate and the supervision unsuccessful. The growth of financial institutions is also causing, in a certain sense, a lack of monitoring where the supervision takes place, and the supervision, therefore, is also hampered.
By all this, I would like to say that there is a lack, in fact, of an overall view of the sector, both concerning the geographical aspect and concerning the sector's activity itself. Understanding the relations between the parties which are active in the sector, as well as the evolving nature of the activity itself, are, I think, crucial for the security of the financial system on a global scale. It seems to me that this has been lacking hitherto.
The current Basel regulations concern, in fact, capital, and I am glad that the new measures are implementing the requirements associated with aspects of liquidity, as well as mechanisms of counter-cyclical policy. The measures proposed in this area should be welcomed. In the context of the low effectiveness of capital indicators as an advance diagnostic measure, stability of the system and the attempt at standardisation of liquidity coverage ratios should be assessed positively in both the short-term and long-term perspective, because it was, after all, liquidity problems which necessitated the measures to save the banks, to which we were witnesses.
Olle Ludvigsson
(SV) Madam President, it is, in many respects, a positive sign that work on the new capital adequacy rules is progressing. The fact that the Basel III process is being brought to a successful conclusion is a prerequisite for being able to restore stability to the financial sector. The report that we are to vote on now is both balanced and well-worded, but I would nevertheless like to highlight three points on which it could have been clearer.
Firstly, it is important in itself not to place too much pressure on the banks by giving them far too short an implementation period, but at the same time, it is at least as important that the implementation does not go too slowly. The aim should be for the banks to have sufficient stability to be able to cope with the next recession. With the target as far away as 2017/2018, there is a risk that many banks will not manage this.
Secondly, we must ensure that the implementation is carried out with close and positive cooperation with the United States and other players. The clear aim must be for the whole of the international banking sector to be stabilised, not just parts of it. Areas with weaker regulations or a slower rate of implementation could expose the whole of the global system to risks.
Thirdly, regular stress tests are an excellent way to continually ensure that the banking system is stable. This is therefore something that we should use as an effective tool to complement the capital rules. Both the frequency and the requirement level of these tests could well be increased. The crisis has demonstrated that some things can happen extremely quickly. In the financial sector, it is therefore important for developments to be monitored very closely at all times.
Olle Schmidt
(SV) Madam President, Commissioner, the new Basel rules will establish the prerequisites for stability and sustainable growth. The crisis has taught us that the banks need to have more and better capital, and the regulations must promote sound banking and sound risk-taking. The rules concerning the leverage ratio must be formulated in such a way that banks that lend low-risk capital are not penalised. There is a risk that the rules will affect banks in the Nordic countries particularly badly, as these banks have large low-risk home loan portfolios. This gives cause for concern.
All directives and new rules must be well thought-out, but, overall, we risk having too many rules, which, in turn, could damage growth. I agree with Mrs Bowles that the Commission must produce an analysis of the effects of all these new banking rules on growth in Europe. Rules and new laws are not always the answer. Let us not settle for good if we can achieve the best.
Antonio Cancian
(IT) Madam President, Commissioner, I would like to thank Mr Karas for his excellent work. I believe that we have stood by and watched this severe global economic and financial meltdown impotently over the past two years, even though some claim that things could have been even worse.
Today, the European Union is at the sharp end, and you, Commissioner, are conducting a revolution, aimed at stability, to provide us with the guarantees we need. During the last plenary session, we gave economic power a positive shake-up to safeguard Europe itself. As you stated not long ago, proposals have already been prepared on derivative products and short selling, and we are also discussing taxation on banks and the levy on financial transactions while awaiting the Commission's final proposed revision.
Commissioner, we need to take great care that, as often happens, we do not go from one extreme to the other, with rules and laws that could hinder or slow down economic development and recovery. I believe that rigidity and bureaucracy are always lying in wait. It is true that at the moment, we need stability, but it is even more true that we very much need growth, growth and more growth - as President Barroso stated in this Chamber.
Basel III marks the start of a process that requires all of us to be responsible, but we must also safeguard competitiveness and equal conditions and pay attention to SMEs, on the one hand, and savings and cooperative banks, on the other, which are close to the grass roots.
Seán Kelly
Madam President, I think everybody agrees that we need to strengthen the resilience of the banking system. Thanks to Mr Karas, we are aware that under the Basel proposals, we do not have a level playing field, and if you do not have a level playing field, you cannot compete. In fact, there is a great danger that you will score many own goals.
The point has been made, but needs to be made precise, that the US and Europe are totally different. The US economy is mainly financed through the capital markets. Europe relies mainly on the lending capacity of the banking sector and we know that more than anywhere in Ireland. Our banks simply cannot give credit to SMEs, and otherwise viable SMEs are going to the wall every day simply because they are starved of credit. And, as Vicky pointed out, the taxpayer is bailing out these bankers and also funding the redundancy packages and the pension funds and the golden handshakes of dormant regulators, etc.
So there is a lot of work to be done to get the balance right and I think that is the key here. I am encouraged by the Commissioner's response, and he did say he would work with us and would try and get the balance right and establish a level playing field. Then we would be scoring goals and not conceding own goals.
Michel Barnier
Thank you, Madam President, and thank you to everyone for your proposals, your encouragement, your suggestions and your requests, which I and my team have noted carefully.
Mr Gauzès was the first to mention the issue of striking the right balance, and this was reiterated by Mr Schmidt, Mr Klinz, Mr Ludvigsson, and just now Mr Kelly. Yes, we will be aiming to ensure that we strike the right balance; in fact, the balance needs to be struck in three particular areas to which I will be paying very close attention:
Striking an intelligent balance in the Basel measures themselves and the way in which we transpose them into our legislation. I will be making the best possible use of the transition periods and of the room for manoeuvre that the Basel Agreement gives us, plus you will be making your own contribution.
The second area in which a balance must be struck is between the Basel measures and all the other measures that we are introducing in the context of the G20 crisis prevention and management agenda, and I will come back to these in a moment.
The third area, which Mr Kelly has just mentioned, concerns the United States. Mr Kelly, I realise that Europe's banking sector is much more involved in financing the economy than is the case in the United States, and we will be taking this difference into account. This is the transatlantic balance. We need to see to this - I am addressing Mr Lamberts in particular - without waiting for the United States. I will be going back to the United States to see Tim Geithner and the other supervisors and I am not going there to drag my heels, but to make sure that we are all moving in the same direction on Basel II, Basel II and a half, Basel III, Basel IV - I beg your pardon, Basel III and CRD 4 - and on another extremely sensitive subject, which could become a point of divergence between the Americans and Europeans, and that is the matter of accounting standards. We are not naive, therefore, in our relationship with the United States, but nor do we want to pre-judge its intentions.
I can therefore reassure Mr Gauzès and all the other honourable Members that we will be paying close attention to this three-way balance. Mr Cancian has also quite rightly mentioned financial instability, which is indeed the worst enemy of growth. This is why we need to establish conditions that will promote greater financial stability and, in view of the debate we are having with China at the moment, I would add monetary stability also.
I have taken careful note of Mr Bullmann's comments urging us to conduct thorough micro-economic and macro-economic studies. We will also make productive use of the transition periods, which are not indefinite, and you are quite right, Mr Bullmann, in saying that it is here and in the Council that Europe's laws are made, not elsewhere, not in Basel. This is where the European legislator is and this is precisely why we are going to produce a proposal for CRD 4, which will be a legislative proposal on which we will be seeking your approval, even before the debate and motion stages.
Mrs Bowles, you are absolutely right in questioning us and in saying that it cannot be business as usual. I also hear certain bankers here and there, who have short memories, telling us that the economic crisis is over and that we can return to business as usual. We cannot allow ourselves to have short memories, and it will not be business as usual. We are perfectly serious about making reforms.
I would also add, Madam President, that the improved capitalisation we are talking about in Basel and CRD 4 is not the only tool, or the only solution. There are many other solutions to crisis management, which I mentioned earlier on in my first speech: there is everything that we are doing to regulate hedge funds of course, which I hope we will be completing in the next few days; then there is our action on private equities, derivatives and short selling. There are other tools which are also important. A few moments ago, Mr Ludvigsson spoke about stress tests. These need to be carried out regularly. So this is our approach at the moment.
Mr Lamberts, I will just mention another important point that you brought up: the payment of dividends by banks that do not put the minimum capitalisation requirements into practice. This problem has been clearly accounted for through one of the so-called buffers, in this case, the capital conservation buffer, which stipulates that a bank cannot pay out dividends if it has not fulfilled the minimum capitalisation requirements. This is one of the provisions which we will, of course, be incorporating in our legislative proposal.
Mrs Ford, we do indeed need to protect taxpayers. I am sure you will be watching closely for the proposals we will be making in a few days' time on crisis management and prevention, and on the creation of a resolution fund in every Member State, we hope, which will ensure that the banks pay for the banks, not the taxpayers.
Mrs Lulling asked a very specific question. Yes, in the Basel talks, my colleagues and I were very attentive to this point and we obtained an agreement that 40% of the liquidity buffer may be made up by the Pfandbriefe, or mortgage bonds, that you asked about. I feel this is a positive result, and we are totally in favour of diversification of liquid assets.
Mr Klinz raised the issue of 'too big to fail'. Here again, when this concern was raised in the United States, I replied that it was impossible to make comparisons, because the US and European banking systems are not the same, either in terms of their contribution to the economy or in their structure. However, Mr Klinz, it is an issue that is not yet settled at international level, both in the context of the G20 and that of the Financial Stability Board. We are watching the situation closely, to make sure that taxpayers are not and cannot be called upon.
Mr Nitras, as regards complex financial instruments, we need stronger supervision. That is why the new European authority, the ESMA, will be playing a key role, thanks largely to this Parliament, in looking into the possibility of banning certain toxic products, and you will see that we will be further reinforcing ESMA's role in the near future.
Lastly, I would like to let Mrs Podimata know that regarding the rating agencies, here again, there will be a third round of actions. What we have done so far with yourselves is not enough, and I am currently working on this third round of actions to regulate rating agencies and diversify the rating agency market, which, to put it mildly, is concentrated in too few hands. We questioned the ministers at ECOFIN last Friday, and your committee Chair, Mrs Bowles, was present. I am going to prepare a consultation aimed at strengthening this regulation.
Mr Schmidt also raised the issue of a cumulative effect; however, I have answered this question in my point about the three-way balance, which is something we are going to be watching very closely.
Othmar Karas
Madam President, ladies and gentlemen, The debate was lucid, clear, competent and responsible. We put out a very good image of ourselves as both cohesive and determined. Commissioner, I would also like to thank everyone who participated, you included. We are not putting the process in doubt, but it is not concluded. We have also brought up a painful subject. The sore point in question consists, above all, of the differences in banking and economic structures between Europe and the United States. We need to say one thing clearly at this point, and that is that, while the legislative process has not started yet, the Basel process does prejudice and limit our freedom to manoeuvre in political decision making. What would have happened if we had not produced an own-initiative report off our own bats? There would not have been a debate today. We therefore need to bring democracy and parliamentarianism into the Basel process, the G20 process, the new global institutions that are being created, and, at the same time, we need to be involved in the process so as not to always be presented with faits accomplis.
Basel III and deposit protection need to be connected, as there is a connection between the two. We need a link between our decision making and global implementation, particularly in the United States. We need the definition of liquidity before we get the draft directive. Meanwhile, the Dodd-Frank Act in the United States presents us with another problem. Because the Americans are going to have problems implementing the liquidity standard, they are now attempting, once again, to introduce additional criteria alongside the external ratings. Our maxim must be that either external ratings or alternative criteria such as price stability should act as the basis of evaluation. Yet we absolutely should not have both for Europe and only one for the United States.
We need to be vigilant and let us also together ensure, Commissioner, that the national finance and economic ministers pass on to their national parliaments what the Commission is now reporting in its impact study. There is less awareness in the national parliaments about what we are doing here and what the impact and causes are in the Member States than there is in this House. We also need to begin an offensive here. Let us involve the national parliaments in this communication process.
President
The debate is closed.
The vote will take place tomorrow.
Written statements (Rule 149)
Sergio Berlato
I believe that the recent economic and financial crisis, or the biggest recession since the days of the great depression, has highlighted the need for a radical review of the current Basel II regulatory framework. I would like to remind you here in Parliament that the Basel II agreement defines the criteria for accessibility to credit by forcing banks to objectively assess the credit status of a company, taking account of risks connected with its possible state of insolvency, of guarantees, and of exposure in the event of bankruptcy. Although the aim of these criteria is to improve the competitiveness of companies and strengthen the financial system, they are excessively punitive to the small and medium-sized enterprises that drive the Union's economy. In concrete terms, because European enterprises are not on such a firm financial footing, application of the agreement often means less access to credit and higher interest rates. Although I find the efforts of the Basel Committee to update the general regulatory framework to be encouraging, I am extremely concerned about the shortcomings that emerged during the course of the negotiating process. For this reason, I agree that it is advisable for Parliament to be more involved in the negotiations with the aim of making the changes needed to ensure that European industry and the European economy are not at a disadvantage.
Giovanni Collino
A new stability pact for Europe is bound to involve the banking system, which represents the other end of the process in which the own resources that are the beating heart of the European economy are used. In other words, the debt that the Member States of the European Union accumulate over time to produce national wealth and distribute it to their citizens is funded and managed by the banks, which should be able to make it produce profit.
While it is true that the Member States will still need a great deal of time to adjust to the standardisation of their financial laws and also to achieve an appropriate level of uniformity within their tax systems, establish decent margins of liquidity, and request reliable leverage effects to guarantee savings and their long-term trends, we must ensure that we can manage to find the right response to the crisis even in the short term.
The own funds that the European Union will have increasing access to will ensure that the aim of EU resources management will be increasingly less to shore up systemic risks and increasingly more to create a set of stimuli to benefit national economies, not only jealously guarded within national borders, but integrated to optimise the use of the respective comparative advantages.
Diogo Feio
Financial institutions that are strong and stable are crucial to the sustainability of the capital market, to access to credit, to competitiveness, and to economic and financial stability. I therefore welcome the adoption of this report, particularly because it includes crucial measures that I tabled dealing with the situation of national financial institutions. I am referring, in particular, to: the need for the Basel Committee and the Commission to clarify the treatment of reciprocal financial cross-holding agreements; the importance of defining the criteria for high quality liquid assets taking into account the definition of European Central Bank eligible assets for monetary policy operations (repo facility); and the inclusion of all euro area sovereign debt as high quality liquid assets, regardless of its specific rating, thus reducing the disproportional impact of rating agency actions.
Jiří Havel
The submitted report is drafted in relatively precise terms. It analyses clearly the issue of the new proposed banking regulation that is under review (Basel II), and gives a detailed analysis of its main points, which, at present, are being discussed at the practical and academic levels. In concrete terms, it involves introducing measures which should contribute to the greater financial stability of the banking sector, and to reducing the probability of another crisis, focusing on the following five areas: the quality of capital (increasing the quality of bank capital is undoubtedly desirable), stricter liquidity standards (the liquidity risk was shown to be significant during the crisis), countercyclical measures (the creation of additional banking capital in good times should limit excessive credit growth and consequent creation of price bubbles, such as, for example, in Spain), the introduction of a leverage ratio (this new indicator should contribute to the greater stability of banks, but it should include not only financial items contained in the bank's balance sheet, but also off-balance sheet items, such as derivatives and the contingent liabilities of the bank) and, last but not least, the creation of a central counterparty for the settlement of OTC transactions, particularly in relation to greater transparency in derivatives. Based on the above, I believe that the submitted report contains a detailed analysis as well as relevant recommendations in the area of the proposed bank regulation, and I therefore recommend that the proposed text be approved.
Petru Constantin Luhan
I believe that having dynamic, clearly defined financial markets, capable of financing huge investments, is an absolute prerequisite for the European economy's recovery. I strongly support the commitment made during the G20 meeting to generate a greater volume of capital and draw up liquidity management standards. These good quality liquidity standards are a key element in the response to the crisis.
I also think that a greater degree of flexibility from the eligible assets available in the European Union, which can be achieved by identifying secure financing sources and their specific features, will create financial stability when faced with crisis situations, both in the short and long term.
Czesław Adam Siekierski
The financial and economic crisis of recent years has dispelled illusions that the banks know their own risk best and are able to determine security requirements on their own. The profound ignorance of some of the people in charge of banks, the paramount importance given to sales plans and the ignoring of risk factors, accompanied by the passivity of the system of financial supervision, are the fundamental sins of the banking sector which were the direct catalyst of the world recession.
Basel II has not proved very effective as a crisis prevention mechanism. In these circumstances, it is essential, as quickly as possible, to create a new code of standards - Basel III - which will no longer include the optimistic assumption of the ability of banks to regulate themselves.
Raising capital requirements will certainly contribute to an increase in the security of the banking sector by a growth in liquidity. However, such measures also carry the risk of transferring costs to the clients of banks - a growth in credit prices and other financial services - to the detriment of the economy. It is necessary, therefore, to guarantee suitable protective frameworks which would prevent us from being affected by this unwelcome effect, or at least keep it to a minimum. On the other hand, however, we must be aware that financial security also costs. The question is, how much are we willing to pay for it?
Angelika Werthmann
The crisis has clearly shown that even bank capital has been insufficient regarding solvability and solvency. The existing regulatory framework therefore requires an in-depth revision and thus, the efforts of the Basel Committee to upgrade the framework in general are to be welcomed, in particular, with uniform, clear and transparent regulations. However, there are some shortcomings here and, in its current form, the framework would put the European economy at a competitive disadvantage. European companies rely on credit from the banks. Eighty per cent of investment and lending in Europe is based on bank credits. In this regard, it is particularly important to secure financing for SMEs. Differences must be taken into account without penalising certain business models. Otherwise, there is a risk of harming the European economy.
