Commissioner Michel Barnier’s reply to the appeal on the importance of cooperative banks for Europe’s economic recovery and growth
Euricse Facts&Comments
comment by Giovanni Ferri (University of Bari)
Commissioner Michel Barnier replied in lieu of President Manuel Barroso to the Appeal in favour of cooperative banks that was sent last spring. The Appeal was endorsed by a large number of scholars from many countries. Overall, 177 scholars from 20 countries signed the Appeal: Austria (2 scholars), Belgium (2), Canada (4), Croatia (1), Czech Republic (1), Finland (4), France (2), Germany (3), Greece (2), Israel (1), Italy (53), Poland (2), Portugal (6), Senegal (1), Slovenia (2), Spain (76), Sweden (2), UK (9), Uruguay (1), USA (3).
The Appeal pointed out that the support offered by the cooperative banks is particularly needed in the present crisis to sustain the small businesses, households and communities throughout Europe. Then it was stressed that to keep providing that support, the cooperative banks demand a deep change in regulation to fully take account of their specificity. It was claimed that only a regulation that would be appropriately tailor made to their specific requirements would avoid debasing the cooperative banks as instead the current one-size-fits-all regulation risks doing. Thus, the Commission was urged to take steps in the required direction.
The reply, sent on July 16, by Commissioner Barnier provides an important keystone recognising the importance and the value of cooperative banks for Europe. First of all, Barnier acknowledges that “cooperative banks are indeed an important element in the EU banking system for efficiently allocating savings to (often local) SME lending”. Furthermore, as compared to some other types of banks, cooperative banks are lauded for providing “a strong shelter during the financial crisis” and for maintaining “core lending to the real economy”. Hence, Barnier underlines that “a diverse, European banking landscape with banks of different sizes, different business models and different governance structures is a source of strength – not of weakness”. Thus, Barnier goes on to say, “during the negotiations on the Basel III framework, the Commission has been very mindful of the impact on cooperative banks”. He also claims that the Commission’s attention has resulted in: i)
recognising that “capital instruments other than ordinary shares, issued by non-joint stock companies, provided they meet all the 14 basic criteria, can continue to be considered … Common Equity Tier 1”; ii) proposing the introduction of possibly multiple leverage ratios, based on a report by the European Banking Authority, considering also the impact of these ratios on the business model of cooperative banks; iii) admitting “the possibility to exempt intra-group exposures and to waive capital requirements at individual level where the entity is part of a group in the same Member State”, perhaps avoiding so to place the cooperative banks at a competitive disadvantage. Finally, Commissioner Barnier states that, while it is vital to raise the resilience of European banks via tighter regulation, more and better capital and improved supervision, “this should not be at the expense of those banks [he refers implicitly to the cooperative banks] that did not cause the crisis”.
It is certainly comforting to hear that the European Commission speaks, perhaps ever louder than before, clear words of attention to the cooperative banks. Indeed, the change is visible with respect to the neglect, if not the negative prejudice, reserved to these banks in the past. Nevertheless, concrete and speedy action is needed. If truth be told, the initial framework of Basel III failed entirely to recognise the importance of the cooperative banks’ business model as the best safeguard to anchor finance to the real economy and against building the massive financial risks that proved of systemic nature. So, most cooperative banks are experiencing an increasing regulatory burden – including significantly raised costs of compliance that might unintentionally provoke regulatory-induced mergers, possibly heightening governance problems within the cooperatives – that they feel misplaced for two reasons: i) because they were not at the origin of the crisis, and ii) because the change in regulation, at least initially, did not recognise the pro-stability role the cooperative banks exert owing to their mission and business approach.
As a result of the crisis, too many SMEs, households and local communities throughout Europe are in dire straights and their cooperative banks are feeling the pain along with them. It would be shameful if the cooperative banks’ support to their stakeholders were to fail at this time due to a regulation that seems largely inappropriate for them. We must hope that the actions the Commission will manage to take to reach a regulation better suited to the cooperative banks will not be too timid and/or lag behind.