BBVA’s Executive Board Member analyzed in Frankfurt the main challenges that Europe will face in the decade ahead and how they will affect banks. José Manuel González-Páramo noted that, on top of political and economic challenges, Europe will need to tackle “the double disruption that digital transformation and climate change will bring” and which will impact not only its economy, but also its financial institutions.
José Manuel González-Páramo was one of the guest speakers at ‘EU Regulatory Outlook for 2020’, a conference organized by Dentons and European DataWarehouse in Frankfurt. His presentation focused on the main challenges that Europe will face in the next ten years. First and foremost, Europe’s key challenge is achieving greater economic integration. To complete this integration, the Economic and Monetary Union needs to be completed, he pointed out.
Following a four-pronged approach that includes: 1) finalizing the Banking Union establishing the deposit insurance scheme; 2) completing the Capital Markets Union; 3) moving towards Fiscal Union; and 4) providing new impetus towards convergence, employment and economic growth, by increasing coordination in economic policy, among other measures.
In second place, he noted that, in the long term, the main challenges Europe is facing are climate change and digital disruption. Regarding the latter, in his opinion, all players, including banks, should start accepting the fact that the business environment has changed and that they need to adapt to it. In this sense, he emphasized the importance of preserving customer trust so that they consent to sharing their data with you. The more customer data a business can collect, the more value added services it will be able to deliver.
He also explained that, regarding the transformation journey of the banking sector, two elements will be essential to determine how fast this change takes place: The first one is banks’ own ability and drive to embrace change. The second has to do with the approach that regulators adopt, which will be key to expediting or hindering this change.
Climate change and its implications
Besides the finalization of the EU's economic and financial architecture and digitization, the other major challenge facing Europe is climate change. José Manuel González-Páramo noted that, despite some skeptic options, climate change is real and man-made. But according to BBVA’s executive board member, there is an element that goes beyond climate change: the approach to sustainability. The way he sees it, the social dimension of sustainability will also transform societies and economies. And, more importantly, if the sustainable approach is correctly adopted, it will generate a number of synergies that will mitigate climate change and improve the economic development of poorest countries, thus curtailing inequality.
Sustainability has already found its way onto public authorities, investors and consumers’ agendas. International and European organizations have included sustainability in their strategy through the Adoption of the Paris Agreement and the UN Sustainable Development Goals (SDG).
The same two cornerstones on which Europe’s banks have to build their plans to navigate in an environment increasingly defined by the impact of climate change, said José Manuel González-Páramo. In particular, he identified three key risks: transition risks (including political, legal, technological, market and reputation risks); physical risks (caused by one-off events or chronic risks) and financial risks (related to the cost of financing of companies or the impact on asset value, among other). But this transition towards sustainability, besides risks, will also create new business opportunities for banks. Opportunities emerging from the push to increase efficiency in productive and distribution processes, transition towards low-carbon energy alternatives, and developing new products, he detailed.
At the event, BBVA’s executive board member was joined by experts such as Michael Huertas, Co-Head of the Financial Institutions Regulatory Practice in Dentons, and Christian Thun, CEO of European DataWarehouse.