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Resilience of the EU financial sector in the global context - Towards a EU DGS?

EDIS is the long awaited third pillar that completes the banking union.

By González-Páramo José Manuel - Board Member, Banco Bilbao Vizcaya Argentaria (BBVA)


It will enhance the banking system’s resilience to future crises, reinforcing financial stability, and restoring a level playing field by limiting competitive disadvantages related to banks’ country of settlement.
The recent regulatory reform contemplates a number of risk reduction measures. The revision of sovereign exposure treatments may be considered as just one of them, and is not particularly related to the EDIS discussion. Hence, it is essential to keep these lines of work decoupled.

The treatment of sovereign exposures is a mid-to-long term initiative that should be carefully analyzed given its paramount complexity. Any change in it, would mean a paradigm shift with far-reaching consequences to the present framework (i.e., practical problems of not having risk-free assets, scarcity of high-quality collateral, pro-cyclical effects, etc.)

The Basel Committee is currently working on the prudential treatment of sovereign exposure. A document with potential policy options is expected by mid-2016. Any decision at the European level should follow the recommendation by the Basel Committee. The EU agenda should not rush to conclusions ahead of international developments on this issue. Otherwise, if these measures are not globally implemented, there will be an unleveled playing field between European banks and the rest of the world. When Europe has attempted to move ahead of global discussions the results have not been good, as -vividly illustrated by the Deauville agreement and the Private Sector Involvement debate in 2010 and 2011, respectively.

EDIS is an essential step towards the completion of the banking union, it should be steadily executed.

To conclude, EDIS is an essential step towards the completion of the banking union. It should be steadily executed to complement previous efforts on the implementation of the SSM and the SRM. On the other hand, sovereign exposures treatment is only one of the risk reduction measures under analysis, whose proper implementation is a complex long term issue. Tying both at the same time, would only unnecessarily complicate both discussions.