Speech - A safer financial sector for the citizens

European Commission

Michel BARNIER

Member of the European Commission, responsible for Internal Market and Services

A safer financial sector for the citizens

Centre for Financial Studies - Goethe University

Frankfurt, 12 September 2013

State Secretary Hölscher,

President Müller-Esterl,

Professor Krahnen,

Meine sehr vereehrte Damen und Herren,

It’s a pleasure to be back in Frankfurt. I am delighted to open the academic year of this exciting research centre which, you professor Krahnen, mentioned to me in Bruges a few months ago.

The world of finance is complex. It needs to be tackled from many different angles. I find it inspiring that the SAFE centre draws on such a wide range of disciplines for its research and policy work. Law. Economics. Marketing. Sociology. And more to come.

I am sure that this multi-facetted approach can lead to a greater understanding of the financial market. The behaviour of market players. And the effects of regulation.

It is no accident that the word SAFE has been chosen as the name for this fine new centre. SAFE is not just an acronym.

We all need the financial sector to be safe. Not a breeding ground for excessive risk taking, greed and instability.

The financial sector itself needs safety and predictability. How else is it to rebuild confidence and mutual trust?

Europe’s companies need a safe financial sector. How else are they to get the financial support they need to grow and expand?

Consumers need a safe financial sector. How else are they to trust banks with their deposits? Or feel confident that they are not being sold products that don’t suit them?

And, more broadly, society needs a safe financial sector. For economic stability, for political stability. And to support growth.

But safe does not mean backward-looking. Or lacking in ambition.

If we want a safe financial sector, we must keep on top of new developments. We must put in place a future-proof framework. It has to leave room for innovation and new ideas. But it also has to be robust.

Robust enough to protect us against the excesses that proved so explosive in the past.

Germany has, like almost all EU countries, suffered through the financial crisis. At the same time, it has managed much better than most.

This has allowed Germany to keep playing its leading role in taking the European project forward.

Stabilising the euro.

Taking a large share of the financial burden.

Helping lay the basis for a genuine European economic and monetary union.

But I know that this comes at a price.

Many Germans feel that Germany is asked to pay for the mistakes committed by other countries in the European Union. Countries that have experienced difficulties putting their house in order.

I also know that many Germans’ confidence in the fairness of the system has been undermined. People question whether the financial system serves society. Or whether it is just there to support rich investors or - even worse - speculators.

A new debate on social justice has emerged.

These issues matter.

They have affected German citizens’ support for the European Union.

I think that most Germans would agree that without the EU, it would not be possible to deliver an effective response to the crisis.

At the same time they question the legitimacy of the EU institutions - or simply don't understand how they work. They are not the only ones. Expanding the range of disciplines that engage with EU policies - as you are doing with the SAFE centre - can really help in doing away with some of the misunderstandings.

I believe that the EU has responded to the concerns of citizens - including Germans - about the stability and fairness of the financial system. Since Lehman Brothers collapsed five years ago this Sunday, the EU has been busy putting in place a whole new set of legal foundations.

This is the bedrock on which a safer, more responsible and more growth-oriented financial system will rest.

The latest of these new rules, just last week, were proposals we made to regulate money market funds. And to deal with shadow banking. This fulfilled the last of our G20 commitments. And it was one of the priorities underlined by Chancellor Merkel in St. Petersburg last week.

But our top priority is the Banking Union. It rests on everything else we have done to make the financial sector stronger and safer.

By creating the banking union, we will make it possible to supervise banks better. And to handle banking problems more effectively - in the euro area and in other Member States which may decide to join.

The cornerstone of this project is the ‘Single Supervisory Mechanism’, or SSM, to be led by the European Central Bank. It allows for better and more integrated supervision of banks and credit institutions within the euro area. I am just back from the European Parliament which voted this morning at the very last majority in favour of this project. Let me also mentioned the role of the ECB and its President Mario Draghi who is now actively working of the implementation of this project for 2014.

But if we want to have a fully-fledged banking union, we also need a ‘Single Resolution Mechanism’. With a single resolution board and a single resolution fund. This is how we will tackle future bank crises efficiently. With minimal costs to taxpayers and the economy.

The Commission made an ambitious proposal in July.

I know that Germany, in particular, has some concerns.

As regards the role of the Commission. As regards the legal basis.

We are confident that our proposal is legally solid.

I will repeat this later this week in Vilnius when I meet the EU Ministers of Finance and Governors of the Central Banks.

I know that Germany shares our ambition. So I see no reason why we could not reach an agreement. As long as we stick to the facts of the debate,as usual I remain with my team committed to make my best efforts to build a robust compromise.

Let me now turn briefly to our main initiatives ahead.

We have been hard at work putting the new structures and rules in place. But we are not there yet. New threats emerge all the time. Long-established practices need to be challenged. Policies and rules need to respond and anticipate more actively than ever before.

The Commission will make a proposal this autumn on the structure of the EU banking sector. Our thinking on this has been greatly informed by the report of the High Level Group chaired by Erkki Liikanen. I would like to thank Professor Krahnen for the valuable contribution he made to that group. And for the impressive amount of work they delivered.

It is an important but complex project.

We had over five hundred replies to our last consultation on this issue. Many respondents called on the EU to take action.

We expect to come forward with our proposal during the autumn.

But we need to get this right. Making sure that large banks finance the real economy rather than trade their way to big profits. And at the same time preserve the diversity of banking models in the European Union.

I don’t believe that one size fits all.

Another area where immediate action needs to be taken is on the regulation of benchmarks.

Benchmarks are essential to many financial instruments. Doubts about their accuracy and integrity can undermine market confidence. Cause significant losses to consumers and investors. And distort the real economy.

We need to take steps to make sure this doesn’t happen again.

We have already agreed rules on market abuse to ban the manipulation of benchmarks. Next week, I will be presenting a proposal establishing rules on good governance and supervision of benchmarks.

Ladies and Gentlemen,

Coming back to German matters: I know that Europe is an issue in the current election campaign.

This is natural, given the leading role that Germany has always taken in Europe. It is a good thing for Europe too. Europe should not shy away from debate or even controversy.

We have a good story to tell.

But let there be no mistake: Germany does not have the option to turn its back on the EU or the euro area.

60 % of German exports go into the Single Market, 40 % into the euro area. German exports to Austria or the Netherlands are of the same order of magnitude as German exports to China.

The Single Market has always been - and remains - a foundation of Germany’s economic success. Both politically and economically, Germany’s future lies in Europe.

Not in a weaker EU, but in a stronger European economic, monetary and political union.

A union that will help us avoid a repeat of past crises - through better regulated financial markets. A union that is better equipped to deal with future threats, wherever they may come from. A union in which, from now on, all members respect the rules of co-ownership.

That is also a condition for solidarity.

We are building this Europe, together with Germany.

Ladies and gentlemen,

To conclude, I am encouraged to see some young academics here today.

The future of Europe’s financial regulation will draw on your expertise. The financial system is too interlinked to be dealt with only within national borders. Or within a single academic discipline.

The way this centre works give me confidence that the links between the financial sector and the real economy are recognised and understood.

Your European approach is a signal that there is a real understanding of the vital interplay between the national and European regulatory systems with due respect for the subsidiarity principle and may be with more respect for this principle in the future

I wish you every success as you start your activities.

The lessons of the financial crisis have been hard to learn. But we are making progress. Our memory will not be short.

We are taking a new approach, a safe approach, a European approach.

There are hopeful signs that the worst of the economic crisis might be over.

I look forward, with you, to building a financial framework that supports the real economy.

To make sure that those green shoots of growth can take root and flourish.

Vielen Dank für Ihre Aufmerksamkeit.