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Bank services 03 May 2018

How to make European financial union a reality

Imagine a Spanish SME asking for a loan in Germany; an Italian easily transferring money to Portugal or a French person taking on a mortgage in the Netherlands.   All of this forms part of the fledgling European capital markets and banking union. What remains to be done? BBVA is one of the few European banks to address these issues at the joint conference of the European Commission and the European Central bank held today in Frankfurt.

“We’re opening a new era for financial services in Europe,” said José Manuel González-Páramo, Head of Global Economics, Regulation and Public Affairs at BBVA, put forward as a member of a panel on how to achieve retail banking union.  However, even if the European banking union is taking important steps, there are still barriers ahead, he warned.

The obstacles are “natural barriers” of retail banking such as proximity, the trust demanded by customers, cultural factors in individual countries such as savings habits, the role of the family as a lender and the level of digital knowledge in carrying on financial transactions. But there are also artificial barriers, such as the differences in national regulatory frameworks – including property registers, insolvency laws and the tax treatment of financial services and products.  Overcoming these barriers is one of the objectives of the banking and capital markets union, explained José Manuel González-Páramo.

In his opinion, the first step Europe needs to take is to revise how the banking union has been functioning to date, and to complete it with a common European deposit guarantee fund. Such a fund would enhance confidence in the safety of deposits regardless of a bank’s location thus helping break the link between sovereign and bank risk.

The second step Europe needs to make is to push ahead with capital markets union, particularly after the UK’s departure from the EU. This project means removing the barriers to the circulation of capital, investment and financing  among EU member countries.

José Manuel González-Páramo, Head of Global Economics, Regulation and Public Affairs at BBVA, during his speech a the ECB's panel in Frankfurt. - European Central Bank

Digitization, the lever for financial union in Europe

In third place, it is necessary to promote the integration role of the digitization of financial services. For González-Páramo, digitization brings with it a number of advantages for consumers such as access to a much wider range of financial services.  An essential previous condition is harmonizing national requirements, to ensure that institutions can efficiently deliver cross-border financial services.

It is important to promote the fintech sector and ensure regulation finds a balance between innovation and investor trust

In this sense, he said that regulation is key to ensure that financial services don’t breach consumer rights. “It’s time to put our foot down on the accelerator”, González-Páramo said in reference to the forthcoming euro summit to be held in June.  “This is an opportunity we cannot afford to let slip”.  

Consumer protection was one of the key discussion points addressed by a panel focused on the broader topic of promoting financial union in Europe. In this sense, digital financial services represent an opportunity to work towards this union, especially following the European Commission’s recent announcement of its Fintech Action Plan. The BBVA Executive sees new technologies as a catalyst for financial union.  “It is important to promote the fintech sector and ensure regulation finds a balance between innovation and investor trust”, he said.

José Manuel González-Páramo took part in the debate along with Monique Goyens, Director General of the European Consumer Organization; Victoria Ivashina, Harvard Business School Professor; and Arno Walter, CEO  comdirect bank. The panel was moderated by Olivier Guersent, Director General of Financial Stability, Financial Services and Capital Markets Union of the European Commission.

From left to right: Olivier Guersent, Director General of Financial Stability, Financial Services and Capital Markets Union of the European Commission; Monique Goyens, Director General of the European Consumer Organization; Victoria Ivashina, Harvard Business School Professor; José Manuel González-Páramo, Head of Global Economics, Regulation and Public Affairs at BBVA; and Arno Walter, CEO  comdirect bank. - European Central Bank

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