What changed

MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION

Follow-up to the European Parliament non-legislative resolution on Banking Union - annual report 2023

on Banking Union – annual report 2023

Rapporteur: Ivars IJABS (Renew / LV)

(2023/2078(INI))

Reference number: 2023/2078 (INI) / A9-0431/2023 / P9_TA(2024)0012

– having regard to its resolution of 11 July 2023 entitled ‘Banking Union – annual report 2022’,

Date of adoption of the resolution: 16 January 2024

– having regard to the Commission’s follow-up to Parliament’s resolution of 11 July 2023 entitled ‘Banking Union – annual report 2022’,

Competent Parliamentary Committee: Committee on Economic and Monetary Affairs (ECON)

– having regard to the European Central Bank’s ‘Feedback on the input provided by the European Parliament as part of its resolution on Banking Union 2022’ published on 20 October 2023,

Brief analysis/assessment of the resolution and requests made in it:

– having regard to the 2022 Annual Report by the European Central Bank (ECB) on supervisory activities of 21 March 2023,

With this resolution, the European Parliament adopts its ninth Annual Report on the Banking Union. The resolution is divided into four main sections. The first two sections (General considerations and Supervision) cover a wide series of recent events and other issues related to the financial sector. The last two sections (Resolution and Deposit Insurance) are focused on the core issues relevant to the completion of the Banking Union.

– having regard to the 2022 Annual Report by the Single Resolution Board (SRB) of 30 June 2023,

In Section 1 “General considerations” and 2 “Supervision”, the European Parliament condemns the Russian aggression against Ukraine and stresses the importance of complying with financial sanctions. It largely welcomes a number of actions already undertaken by the Commission, the European Supervisory Authorities, the Single Supervisory Mechanism, the Single Resolution Board (SRB) and the banking sector and expresses broad support for a number of important Commission initiatives such as the completion of the Banking Union.

– having regard to the Commission’s proposal of 24 November 2015 for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 806/2014 in order to establish a European Deposit Insurance Scheme (COM(2015)0586),

In Section 3 “Resolution” and 4 “Deposit Insurance”, the European Parliament welcomes the good crises preparedness and loss-absorbing capacity of banks and highlights the role of the SRB and industry-funded safety nets in protecting taxpayers. It also welcomes the Crisis Management and Deposit Insurance review and the significant progress in risk reduction which together are a good basis for the success of the Banking Union.

– having regard to the Commission’s proposal of 14 March 2018 for a Directive of the European Parliament and of the Council on credit servicers, credit purchasers and the recovery of collateral (AECE) (COM(2018)135),

The European Parliament also stresses that the European Deposit Insurance Scheme (EDIS) would improve protection for depositors in the EU, increase their trust in the banking sector and help to strengthen the Banking Union by reducing the link between sovereigns and banks. It also reiterates Parliament's commitment to resuming its work and points out that any further harmonisation of deposit insurance schemes would strengthen the financial stability of the EU banking system.

– having regard to the Council’s press release of 7 December 2022 entitled ‘Anti-money laundering: Council agrees its position on a strengthened rulebook’,

Response to requests and overview of action taken, or intended to be taken, by the Commission:

– having regard to the Council’s press release of 27 June 2023 entitled ‘Banking sector: Provisional agreement reached on the implementation of Basel III reforms’,

On General Considerations

– having regard to the Commission’s proposal of 18 April 2023 for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 806/2014 as regards early intervention measures, conditions for resolution and funding of resolution action (COM(2023)226),

The European Parliament stresses the importance of the implementation of sanctions and calls on the Commission to take actions in this respect (paragraph 2). It also calls on supervisory institutions and the European Central Bank (ECB) to help the remaining EU banks operating in Russia to exit this market (paragraph 3).

– having regard to the Commission’s proposal of 18 April 2023 for a Directive of the European Parliament and of the Council amending Directive 2014/59/EU as regards early intervention measures, conditions for resolution and financing of resolution action (COM(2023)227),

The Commission shares the observations on the importance of ensuring the effective implementation of sanctions and works towards this objective and to address circumvention.

– having regard to the Commission’s proposal of 18 April 2023 for a Directive of the European Parliament and of the Council amending Directive 2014/49/EU as regards the scope of deposit protection, use of deposit guarantee schemes funds, cross-border cooperation, and transparency (COM(2023)0228),

The Commission follows closely developments in the financial sector in Russia, and in particular, the operations of EU banks, whose activity in Russia is closely monitored by supervisory institutions and the ECB in order to take action or provide guidance, if necessary (paragraphs 2 and 3).

– having regard to the Five Presidents’ Report of 22 June 2015 entitled ‘Completing Europe’s Economic and Monetary Union’,

The Commission shares the observations on the importance of the Banking Union to complement the Economic and Monetary Union and the internal market (paragraphs 4 and 5) and welcomes the Parliament’s stance on the need to complete the Banking Union.

– having regard to the Eurogroup statement of 16 June 2022 on the future of the Banking Union,

The Commission continues to work on the completion of the Capital Markets Union (CMU) with significant progress having been made since the project began in 2015. It has delivered on all measures in the 2020 CMU action plan and almost all of the legislative measures have been agreed upon or are being negotiated by co-legislators. These measures are expected to have a positive impact on the growth of EU capital markets, improve access to market-based sources of funding for EU companies, making it easier and more attractive for investors to invest in EU companies and to increase financial stability and resilience.

– having regard to the standards of the Basel Committee on Banking Supervision on the prudential treatment of cryptoasset exposures, published on 16 December 2022,

The Commission considers that the CMU is as fundamental as ever to deliver on the EU’s key economic policy objectives: a competitive and resilient economy that works for all, the transition towards a digital and sustainable economy and open strategic autonomy in an increasingly complex global economic and geopolitical context (paragraphs 5).

– having regard to the Commission’s communication of 16 December 2020 on tackling non-performing loans in the aftermath of the COVID-19 pandemic (COM(2020)0822),

The Commission shares the European Parliament’s observation that the EU banking sector needs to be profitable in the long term, also to ensure its competitiveness, and agrees that banks should continue to strengthen their resilience to macroeconomic and financial shocks, including by using profits to build buffers. Banks should also use profits for future-oriented investments. The Parliament notes that limitations on dividends and buy-backs proved effective during the COVID-19 crisis. The Commission agrees with the Parliament and notes that such limitations should only be considered to address exceptional circumstances. In normal circumstances, the existing prudential and resolution rules limiting dividend distributions seem adequate (paragraphs 6 and 7).

– having regard to the ECB recommendation of 15 December 2020 on dividend distributions during the COVID-19 pandemic,

The Commission takes note of the Parliament’s concerns relating to the tightening of credit standards for loans to firms and households, including for house purchases while noting that this is also linked to a tightened monetary policy that seeks to curb inflation. There is also an inherent trade-off between lending to finance the real economy and building up buffers to resist shocks. In this regard, the Commission notes that last year’s political agreement on the Banking Package, which incorporates the final Basel III reforms in EU law, seeks to achieve that balance. In addition, the Banking Package, which is expected to be voted by the Parliament in April 2024, includes a mandate for the European Commission to review the regulatory framework and assess the status of the Single Market for banking. The drawing up of that report will be an occasion for the Commission to further reflect on the call of the European Parliament to assess impediments to cross-border mergers as well as potential incentives for ring fencing in view of seeking solutions to make the banking sector more integrated and foster the development of capital markets (paragraphs 8 and 9).

– having regard to the ECB Occasional Paper Series ‘The Road to Paris: stress testing the transition towards a net-zero economy’,

The Commission fully shares the European Parliament’s view that a well-functioning and competitive single market is essential for retail financial services. In its Retail Investment Strategy published on 24 May 2023, the Commission has proposed measures to improve the framework for retail investment. The aim is to ensure that retail investors are empowered to take financial decisions which are right for them and are sufficiently protected so as to enhance trust and confidence in capital markets (paragraph 10).

– having regard to the outcome of the 2023 EU-wide transparency exercise of the European Banking Authority (EBA), published on 28 July 2023,

One of the Commission’s main objectives of the CMU action plan was to improve access to market-based sources of finance for EU companies, especially small and medium sized enterprises (SMEs). For example, the Listing Act seeks to reduce the burden and red tape associated with the listing process for companies seeking to raise funding on public capital markets. This is particularly helpful for SMEs for which these costs represent a disproportionate burden. The Commission also included SMEs’ access to finance within the scope of the Financial Data Access proposal (FIDA). The FIDA proposal seeks to create a new framework for secure and open access to customer data across a wider range of financial services. This framework would also support SMEs that are looking for funding from a bank or an alternative funding provider by creating secure and open access to customer data across a wider range of financial services. Effective competition in financial markets, including on mortgage interest rates, within the EU, encourages financial institutions to offer financial products and services to their customers on the most favourable terms. It contributes to efficiency, innovation and price reduction, for the benefit of consumers. The Commission monitors market developments to ensure that competition is functioning properly. In the event of any credible competition concerns with regard to the EU banking sector, the Commission will be ready to act (paragraph 11).

– having regard to the EBA report on the role of environmental and social risks in the prudential framework,

The Commission shares the Parliament’s view that banks should play a role in supporting the transition to a digitalised and carbon neutral economy, also to achieve the objectives of the EU Green Deal and the EU Climate Law. It must be noted, as the Parliament acknowledges, that support for the green transition and the digital transition should not come at the cost of financial stability. The Commission is of the view that, also in these areas, the Banking Package sets out appropriate measures. Concerning the green transition, the new prudential rules will require banks to draw up and maintain transition plans, whose actual content will be further detailed by the European Banking Authority and will be scrutinised by bank supervisors. Supervisors will then be able to take them into account, along with stress tests, to possibly require banks exposed to climate-related and other environmental risks to hold more capital. Concerning digitalisation, prudential rules include a favourable treatment (the infrastructure supporting factor) for banks that finance strategic infrastructure, including digital ones, provided that the project is environmentally sustainable (paragraph 12).

– having regard to the ECB document of May 2023 entitled ‘Financial Stability Review’,

The Commission also stands ready to respond to the Parliament’s call to assess whether new legislative initiatives are needed to further limit the bank-sovereign nexus, as part of the work on completing the Baking Union (paragraphs 16 and 46).

– having regard to the ECB’s report of 12 December 2022 on its supervisory priorities for 2023-25,

Concerning gender-balance in financial institutions, Directive (EU) 2022/2381 on improving the gender balance among directors of listed companies and related measures adopted in2022 will ensure that gender balance in corporate boards of the largest listed companies is sought across the EU (paragraphs 13 and 14). The directive sets a target for EU companies listed on EU stock exchanges to accelerate the achievement of better gender balance. It sets a target of at least 40% of the underrepresented sex among non-executive directors and at least 33% among all directors. These companies must ensure that board appointment procedures are clear and transparent, and that applicants are assessed objectively based on their individual merits, irrespective of gender. The transposition by Member States should be completed by 28 December 2024.

– having regard to the report of the European Court of Auditors of 12 May 2023 entitled ‘Special report 12/2023: EU supervision of banks’ credit risk – The ECB stepped up its efforts but more is needed to increase assurance that credit risk is properly managed and covered’,

The Commission agrees that the European institutions should do their utmost in terms of outreach to ensure that a wide variety of competent candidates apply for roles such as those in the Single Resolution Board (SRB), thus enabling gender-balanced shortlists of candidates as far as possible.

– having regard to the statements by Andrea Enria, Chair of the Supervisory Board of the ECB, at the hearings of Parliament’s Committee on Economic and Monetary Affairs on 21 March 2023 and on 28 June 2023,

The Commission shares the European Parliament’s opinion that an EU safe asset could weaken the negative feedback loop between banks and sovereigns at national level. In that regard, the NextGenerationEU created a low-risk European asset which allowed banks to successfully diversify their sovereign exposure (paragraph 17).

– having regard to the statements at the public hearing of the Committee on Economic and Monetary Affairs with the candidate proposed for the Chair of the Supervisory Board of the ECB on 20 September 2023,

On Supervision

– having regard to the statements of Dominique Laboureix, Chair of the SRB, at the hearings of Parliament’s Committee on Economic and Monetary Affairs on 1 March 2023 and on 18 July 2023,

The Commission takes note of the Parliament’s observation on European banks’ capitalisation (paragraph 18). It notes that banks maintained robust capitalisation levels in the third quarter of 2023. The average Common Equity Tier 1 (CET) ratio (fully loaded) remained at high levels, slightly decreasing by 10bps to 15.8% from a historical high of 15.9% reported in the second quarter of 2023. On a year-on-year basis, the CET1 ratio increased by 100bps, from 14.8% in September 2022.

– having regard to the SRB Bi-annual reporting note to the Eurogroup of 15 May 2023,

The Commission also notes the Parliament’s remark on the decrease of liquidity indicators. Nonetheless, the liquidity outlook is overall stable and banks show healthy liquidity ratios, well above minimum requirements. The liquidity coverage ratio (LCR) slightly decreased from 160.9% in the second quarter of 2023 to 160.7% in the third quarter of 2023 for EU banks. The volume of client deposits, the most important funding instrument, is at a comparable level to December 2022, after a decline in the first half of 2023 and a slight increase in the third quarter. The LCR had declined faster in the second quarter of 2023 due to the repayment of the ECB’s targeted longer-term refinancing operations (TLTRO) III facility by Euro area banks. Given the underlying liquidity context this should be interpreted as the gradual absorption of excess liquidity in the EU banking system (paragraph 19).

– having regard to the joint statement by the ECB Banking Supervision, the EBA and the SRB of 20 March 2023 on the announcement on 19 March 2023 by Swiss authorities,

The Commission shares the Parliament’s view on the progress made by banks in reducing the stock of non-performing loans (NPLs), stable at 1.8% as of the third quarter of 2023. Notwithstanding the fact that the aggregate NPL ratio is following a declining trend, the Commission believes that vigilance should remain high given that in some Member States the absolute NPL volume remains significant, also in the light of the elevated uncertainties given the EU economic outlook (paragraph 20).

– having regard to the Memorandum of Understanding dated 27 June 2023 establishing a framework for financial services regulatory cooperation between the European Union and the United Kingdom of Great Britain and Northern Ireland,

The Commission agrees with the overall objective to continue working to further improve this market segment. It also agrees with the call on supervisors to monitor the development of stage 2 loans. The Commission will monitor the implementation of the various actions outlined in its action plan to tackle non-performing loans, including the transposition and implementation of the Directive on credit servicers and credit purchasers to further foster the development of NPL secondary markets, while ensuring further strengthened protection for debtors.

– having regard to the declaration of 7 December 2022 signed by the Chair of Parliament’s Committee on Economic and Monetary Affairs and agreed on by the coordinators for six Parliament political groups (European People’s Party, Progressive Alliance of Socialists and Democrats, Renew Europe, Greens/European Free Alliance, European Conservatives and Reformists and The Left) on the European deposit insurance scheme,

The Commission fully shares the Parliament’s view that banks need to ensure prudent risk management and appropriate provisioning: these are requirements under the existing prudential framework. The Commission acknowledges the deteriorating macroeconomic situation. It is actively monitoring the dynamics in EU banks asset quality and stands ready to take action if needed (paragraphs 19 and 20).

having regard to its resolution of 25 March 2021 on strengthening the international role of the euro,

The Commission agrees with the Parliament that the banking crises events which took place in third countries in the Spring of 2023 have shown potential vulnerabilities in the financial system. While the Commission believes that European banks and European bank supervisors need to remain vigilant, it is worth recalling, as the Parliament rightly does, that the EU banking sector remained solid in 2023. This is demonstrated by the results of the European Banking Authority (EBA) and ECB joint stress test exercises, but also by the capital and liquidity position of European banks as reported in the latest EBA risk dashboard (paragraph 21).

– having regard to its resolution of 14 March 2019 on gender balance in EU economic and monetary affairs nominations,

The Commission has supported and continues to support actions taken by macroprudential authorities in the EU to strengthen banks’ resilience through capital and risk weight measures. In addition, the so-called borrower-based measures, which set limits to bank lending standards, are not part of the EU legal framework. Nevertheless, the Commission supports national action also in this area where appropriate (paragraphs 7 and 23).

– having regard to Rule 54 of its Rules of Procedure,

With regard to the Parliament’s call on bank supervisors to monitor banks’ exposures to interest rate risks, the Commission notes that the Banking Union supervisor, the ECB-SSM (Single Supervisory Mechanism), included in its supervisory priorities for 2024-2026 a specific focus on how banks manage such risks. In addition, the EBA is in the process of finalising technical standards on the issue. In line with the Parliament’s suggestions, all these elements are going to feed into the Commission’s assessment of the regulatory framework for banks pertaining to credit risk exposures (paragraphs 22 and 23).

– having regard to the report of the Committee on Economic and Monetary Affairs (A9-0431/2023),

The Commission thanks the Parliament for its efforts to make sure that the final Basel III reforms are implemented into Union law in a timely manner. While the Commission took good note of the views expressed by the EBA and the ECB regarding the risks of deviating from international standards, it is important to note that the Banking Package includes phase-in periods and adjustments, reflecting the specificities of the European banking sector. Union rules need to cater for different banking system structures, bank practices, and bank business models across the 27 Member States. Considering this, the Commission fully supports the Parliament’s call for further harmonisation of the EU bank regulatory framework (paragraphs 24, 25 and 26). At the same time, the Commission acknowledges the request of the Parliament to combine further integration with adequate safeguards addressing the home-host issue in a proportionate and credible manner, which is one of the objectives of the planned Commission’s assessment of the regulatory framework for banks which is scheduled for end 2028 (paragraph 29).

A. whereas the Banking Union (BU), which currently encompasses the Single Supervisory Mechanism, the Single Resolution Mechanism, and a single rule book as its foundation, is an integral part of the Union’s financial stability, and guarantees a high minimum standard in the area of deposit protection in the absence of a European deposit insurance scheme (EDIS);

The Commission takes note of the observation of the Parliament that the fully fledged transposition of the Basel standards for crypto assets into Union law is still pending. At the same time, the Commission notes that the political agreement on the Capital Requirements Regulation include a transitional regime and, along with the Regulation on markets in crypto-assets (MiCAR), makes Union law one of the most advanced legislations on cryptos worldwide (paragraph 27).

B. whereas addressing the risks arising from the problem of the overly concentrated sovereign-bank nexus would offer crucial additional stability and security for the European banking system and the customers that use it;

The Commission also takes notes of the Parliament’s concerns on the growth of the non-bank financial intermediary sector as well as the linkages with the banking sector. In this regard, it is worth noting that the Banking Package strengthens the related disclosure requirements, thus equipping bank supervisors and market participants with valuable information on interconnections between the sectors. The Commission conducted a first analysis of the growth of the non-bank financial intermediary sector and associated risks, and will collect further evidence on missing tools, potential gaps in existing tools to meet macroprudential objectives and on the effectiveness and consistency of macroprudential policies for the non-bank financial institutions (NBFIs) in the EU (paragraph 28).

C. whereas a fully developed BU would be a positive development for citizens and the EU economy, providing the basis for a more stable banking system, reduction of systemic risk, enhanced competition, improved consumer choice and protection, increased opportunities for cross-border banking and access to retail financial services, greater economic investment, better access to funding for households and businesses, and lower costs for banks’ customers, while ensuring that public funds are not used to bail out the banking sector;

The Commission also welcomes the observation that the ECB’s supervisory priorities include climate, but also nature-related financial risks for the coming years. In particular, the Commission will monitor the Fit-for-55 stress test that will be carried out by the ECB and the European Supervisory Authorities (ESAs) by 2025. The Commission will continue its work to curb greenwashing following the Opinions of the three ESAs and via, among others, the implementation of the Regulation on the transparency and integrity of Environmental, Social and Governance (ESG) rating activities (paragraphs 30 and 31).

D. whereas EU banks have withstood the impact of Russian aggression; whereas they play a pivotal role in ensuring the ongoing implementation of and compliance with the sanctions imposed by the EU against Russia in response to the invasion; whereas further coordination is needed to avoid circumvention of sanctions;

On Resolution and deposit insurance

E. whereas climate change, environmental degradation and the transition to a low-carbon economy are factors to be taken into account when assessing the sustainability of banks’ balance sheets, as a source of risk potentially impacting investments across regions and sectors;

In April 2023 the Commission put forward legislative proposals to review the existing framework for crisis management and deposit protection, with the goal of ensuring more consistent approaches across all the Member States towards the application of resolution tools and deposit protection, including facilitating a market exit for failing banks, to the benefit of financial stability, taxpayers’ protection and depositors’ confidence. The Commission remains committed to working closely with the European Parliament and the Council on these topics and welcomes the European Parliament’s willingness to reach an agreement on this reform promptly (paragraphs 37 and 41).

F. whereas agreement on an EDIS has not yet been achieved; whereas, following calls from Parliament, the Commission proposed a reform of the crisis management and deposit insurance (CMDI) framework, while recognising that this framework should not be considered as a replacement for an EDIS;

The Commission shares the view of the European Parliament that a loss sharing European Deposit Insurance Scheme would improve protection for depositors in the EU, wherever their bank is located, and provide an additional safeguard to host Member States. It would mitigate potential risk of liquidity shortfall in national Deposit Guarantee Schemes (DGSs) and the risk of recourse to public funds. It takes note of the work in the European Parliament in view of resuming its work on the gradual process of pooling liquidity and building the EU fund. The Commission also shares the expectation that the prompt adoption of the Crisis Management and Deposit Insurance framework will pave the way for further progress on Banking Union completion (paragraphs 41 to 47).

G. whereas although a political agreement was reached in 2020 on the creation of a backstop to the Single Resolution Fund (SRF), that backstop is still missing; whereas, according to the latest available data, 16 of 36 deposit guarantee schemes in the EU were below their required (minimum) funding level;

H. whereas the lack of cross-border consolidation of the EU banking sector is affecting its global competitiveness and consumer banking in some Member States is still dominated by a small number of banks; whereas the profitability gap between EU and US banks has widened during the last decade and EU banks’ return on equity is 5 points lower than that of US banks’;

I. whereas the EU banking sector has shown rising profitability, partly due to higher interest rates and as a result of increased ECB deposits; whereas the rise in interest rates has also led to a deterioration of the balance sheet of certain banks due to unrealised capital losses;

J. whereas a strong, stable, resilient, dynamic and competitive banking sector is vital for delivering economic growth, for financing small and medium-sized enterprises (SMEs) and start-ups, for increasing the possibility of homeownership, and for the urgent transition to a green and digital economy;

K. whereas the banking sector faces risks following the pandemic and the invasion, particularly in relation to asset quality deterioration; whereas although the non-performing loan (NPL) ratio decreased to 2.24 % in the first quarter of 2023, and has steadily declined since the end of the Great Recession, further reduction is needed;

L. whereas EU legislators negotiated rules to implement Basel III standards in a way that preserves banks’ competitiveness and takes into account the specificities of the EU banking sector;

M. whereas the digitalisation of finance provides important opportunities for the banking sector and has brought about important technological advances in the EU banking sector through increased efficiency in the provision of banking services and a greater appetite for innovation; whereas it also poses challenges, including with regard to data protection, reputational risks, anti-money laundering (AML), and consumer protection concerns;

N. whereas financial institutions rely increasingly on the use of information and communications technology (ICT); whereas the EU banking sector must increase its cyber resilience to ensure that ICT systems can withstand various types of cyber security threats;

O. whereas the level of sovereign exposure has been growing in a number of banks; whereas the risks arising from the problem of the overly concentrated sovereign-bank nexus need to be addressed;

P. whereas the Banking Union should help to address the bank-sovereign nexus or doom loop, which continues to exist; whereas the level of sovereign exposure has been growing in a number of banks; whereas the prudential treatment of sovereign debt should be consistent with international standards;

Q. whereas interest rate hikes have had a negative impact on the borrowing capacity of households and the capacity of borrowers to repay debt and make EU banks vulnerable to potential losses in the future; whereas risks stemming from interest rate hikes have been so far properly addressed;

R whereas the completion of the Capital Markets Union (CMU) requires the establishment of common rules and effective tools to reduce internal market fragmentation and facilitate access to alternative financing;

S. whereas the EU and the UK have signed a Memorandum of Understanding on Financial Services Regulatory Cooperation, and this cooperative approach should underpin long-term EU-UK relations particularly in the area of banking; whereas the Commission has again extended its temporary permit allowing EU banks and fund managers to use UK clearing houses;

General considerations

1. Condemns the Russian aggression against Ukraine and its impact on the Ukrainian people, on the EU and elsewhere; calls on banks to continue adapting their strategic decisions to the new European and international context resulting from this circumstance, to address systemic risk, and to continue implementing and complying with the financial sanctions adopted in response to Russia’s invasion of Ukraine;

2. Recalls that, while Member States are responsible for identifying breaches of EU sanctions, the banking sector plays a key role in the implementation of sanctions and in monitoring compliance; calls on the Commission to create a database at EU level to foster coordination among banks, close loopholes in Member States’ implementation of sanctions and assess how EU banks implement sanctions; takes note of Parliament’s position on the anti-money laundering authority regulation (AMLA) proposal, which tasks the new Authority with supporting a consistent application of the EU targeted financial sanctions;

3. Notes that total direct banking sector exposures to Russia and Ukraine are limited as banks are currently reducing their exposures, and calls on supervisory institutions and the ECB Banking Supervision to help the remaining EU banks operating in Russia to make an orderly exit from the Russian market;

4. Highlights that the Banking Union remains an essential complement to the Economic and Monetary Union (EMU) and therefore the internal market; recalls that key goals of the Banking Union are the security of the banking system, depositor protection and the prevention of bank bailouts by taxpayers; acknowledges the progress made over the last 15 years through the establishment of the Single Supervisory Mechanism (SSM) and Single Resolution Mechanism (SRM), and that EU banks are now in a better position to withstand financial shocks; calls for the completion of the Banking Union, and notes that its third pillar, EDIS, is still pending;

5. Asks the Commission to retain the completion of the Banking Union and the Capital Markets Union as key priorities for the remainder of its current mandate and for its next mandate; highlights that both projects: – offer households and SMEs, which are still largely reliant on bank credit, broader access to funding, – foster investments and job creation, – support the European economy – increase financial stability – reduce the impact of economic downturns – fund the digital transition and the transition to a sustainable economy, and – unlock the EU’s growth potential;

6. Takes note of the EBA’s statement of 13 July 2023 stating that the EU/EEA banking sector shows rising profitability, but asset quality and profitability related risks are looming; takes note of recent short-term increases in the profitability of EU banks (annualised return on equity rose to 10.04 % in the second quarter of 2023, while in the same period of 2022 it was 7.59 %, reaching its highest level in 14 years), but warns that these need to be sustainable to ensure long-term competitiveness;

7. Encourages the use of profits to build buffers, thus safeguarding the stability of the financial system, and to finance the European economy; notes that the temporary suspension of dividend distribution and share buy-backs was effective in safeguarding banks’ resilience during the COVID-19 crisis;

8. Notes that the Q2 Euro Area Bank Lending Survey of 2023 showed that banks further tightened their credit standards for loans to firms and households for house purchases due to higher risk perceptions, lower risk tolerance and increased funding costs, and that banks also tightened lending conditions amid higher levels of concern about non-performing loans; recalls the key role of the EU banking sector in financing the recovery of the EU economy and considers that the recovery will also depend on banks having sufficient capital to provide credit, particularly as public support measures in Member States are gradually removed;

9. Calls on the Commission to assess impediments to cross-border mergers as well as potential incentives for ring fencing; takes note that, according to a public statement by Andrea Enria, Chair of the ECB Supervisory Board, the banking sector is still, by and large, a collection of national banking sectors; notes that a more integrated EU banking sector could enhance banks’ ability to undertake strategic investments and foster the development of EU capital markets, while acknowledging that the diversity of banking business models in the euro area enhances the resilience of the financial system; notes the risks that ‘too big to fail’ institutions could entail, and notes that financial stability could be increased by a reform of EU G-SIBs that addresses moral hazard risks highlights that cross-border consolidation without excessive concentration could increase the profitability of the EU banking sector, and potentially improve the current situation of reduced services offered and increased costs for citizens in many Member States;

10. Notes that retail banking services in certain Member States remain dominated by a small number of banks and the consequential reduction of consumer choice for retail banking customers; considers that an integrated Banking Union must be contingent on a well-functioning single market for retail financial services; regrets the remaining barriers to cross-border retail banking services and calls on the Commission to assess the obstacles and barriers that arise for consumers when availing themselves of retail banking products; emphasises the potential for an integrated Banking Union to improve competition and consumer choice in the area of retail banking, including through improved opportunities for the provision of cross-border retail banking services; stresses the benefits of a diversified and competitive banking sector in the EU;

11. Highlights that the interest rates offered to households and SMEs across the Member States are highly disparate; urges the EU institutions and bodies to consider measures to improve consumer choice and competition and ease the burden on mortgage holders and SMEs in Member States with higher lending rates to ensure that all citizens and businesses can access much-needed capital at fair and competitive rates;

12. Highlights the role of the banking sector in supporting the transition to a digitalised and carbon neutral economy, in channelling funds to renewable energy sources and in supporting the achievement of the objectives of the EU Green Deal and the EU Climate Law; takes note of EU banks continuing to reduce their exposure to energy intensive and fossil fuel corporates, and takes note of the various factors impacting financial stability, including fossil fuel asset values; awaits the publication of the EBA reports on the crucial issues of the riskiness of institutions’ exposures to ESG assets and the potential effects of an adjusted prudential treatment of these exposures, to be published by the end of 2024 and 2025;

13. Regrets the failure of financial institutions to ensure gender-balance, especially in their management bodies; stresses that gender balance on boards and in the workforce brings both societal and economic returns; calls on financial institutions to regularly update their diversity and inclusion policies and to help foster healthy working cultures which prioritise inclusivity; calls on supervisory authorities to make use of their supervisory powers to address the lack of diversity and gender-balance in the management bodies of financial institutions;

14. Regrets the lack of gender balance in the ECB Governing Council, its Supervisory Board and the SRB Board; calls on actors to ensure that future appointments close the gap; recalls Parliament’s resolution of 14 March 2019 aiming to secure gender balance in the forthcoming list of candidates for EU economic and monetary affairs nominations and reiterates its commitment not to take into account lists of candidates where the gender balance principle has not been respected;

15. Regrets that, as part of the selection procedure for the Chair of the ECB Supervisory Board, the ECB disregarded the feedback from Parliament; urges the ECB to duly take into account Parliament’s opinion in the upcoming selection procedures;

16. Notes that banks’ exposures to domestic sovereign debt remain high in the Banking Union; recalls that one of the main objectives of the Banking Union is to break the link between bank and sovereign risks; emphasises that the issue of regulatory treatment of sovereign exposures requires an in-depth examination within international forums and should be consistent with international standards, and calls on the Commission to take that into account when addressing this issue in any future proposals; shares the EBA’s concern that sovereign exposures are material for EU banks and could become a source of potential vulnerability;

17. Stresses that the creation of an EU safe asset could help to mitigate the negative feedback loops between sovereigns and domestic-banking sectors; considers that NextGenerationEU provides high-quality, low-risk European assets, allowing for a rebalancing of sovereign bonds on banks’ balance sheets;

Supervision

18. Notes that the Common Equity Tier 1 ratio increased in the second quarter of 2023 to 15.72 % (up from 14.96 % in the second quarter of 2022); regrets that the liquidity coverage ratio fell to 158.00 % in the second quarter of 2023 (down from 164.36 % in the second quarter of 2022);

19. Notes that the NPL ratio decreased further, and calls for a further reduction; recalls that risk reduction in the banking sector would contribute to a more stable, stronger and economic-growth-oriented Banking Union; calls on supervisors to also monitor the development of stage 2 loans; notes the lack of progress on the AECE Directive proposal, which intends to provide banks, under certain conditions, with a mechanism to accelerate the value recovery from secured loans via extrajudicial enforcement of procedures, in order to further develop secondary markets for NPLs; highlights that the Directive on credit servicers and credit purchasers has made the secondary market for NPLs more efficient, while establishing high safeguards for debtors; underlines that the sale of an NPL represents a second best solution compared to returning the credit to performing status;

20. Takes note of a deteriorating macroeconomic situation; points out that EU banks should prepare for a potential deterioration in asset quality; therefore highlights the importance of prudent risk management and appropriate provisioning; invites the Commission as well as national and EU supervisory authorities to prepare for a potential deterioration in asset quality;

21. Notes that the latest round of bank failures in the US and Switzerland has shown the vulnerabilities of the financial system, particularly in those countries; highlights that, against this backdrop, the capital and liquidity situation of EU banks has continued to remain solid, thereby demonstrating the resilience of the EU banking sector; underlines that EU and national supervisors addressed those risks and welcomes the results of the 2023 EU-wide stress test and the fact that EU banks could withstand an economic downturn;

22. Calls on supervisors to continue assessing banks’ exposures to interest rate risks stemming from further changes in interest rate levels; notes that the exposure of banks to interest rate risk depends on their asset structure and business model, and awaits the Commission’s assessment of the regulatory framework for banks; is concerned about the significant level of sovereign debt on the balance sheets of banks in the Banking Union; emphasises that the issue of regulatory treatment of sovereign exposures requires an in-depth examination within international forums and should be consistent with international standards; recalls that one of the main objectives of the Banking Union is to break the link between bank and sovereign risks;

23. Recalls that the ECB’s ‘Financial Stability Review 2023’ emphasises the importance of taking into account the deterioration of bank balance sheets associated with rising interest rates and emphasises that macro-prudential authorities will need to gradually strengthen capital and/or borrower-related measures;

24. Calls for further harmonisation of the EU regulatory framework, where appropriate, promoting convergence between national authorities and using the supervisory dialogue to assess the evolution of threats to the banking sector;

25. Welcomes the agreement reached at interinstitutional level to implement Basel III standards in the EU; underlines that the framework will deliver different levels of increase in prudential requirements depending on banks’ reliance on the use of internal models to calculate their risk-weights; highlights that the new rules have strengthened and better specified proportionality in banking supervision and will continue to increase financial stability in the EU; underlines the importance of a level playing field between jurisdictions;

26. Takes note of the views expressed by the EBA and the ECB regarding the deviations from the international agreement introduced in the Capital Requirements Regulation;

27. Stresses that crypto-assets create new opportunities and challenges for banks; notes that the implementation of the Basel standards for crypto-assets is still pending; welcomes the transitional regime already included in the current review of the Capital Requirements Directive and the Capital Requirements Regulation; awaits the Commission’s legislative proposal by 30 June 2025 to introduce dedicated prudential treatment for exposures to crypto assets, taking into account the Basel standards;

28. Notes that the non-bank financial intermediary sector is continuing to grow; stresses the need to enhance the resilience of non-bank financial intermediaries and establish a level playing field with the banking sector, including by designing specific regulatory and supervisory tools to prevent a liquidity crisis; welcomes the IMF’s World Financial Stability Report, published in April 2023, which identifies possible sources of risk to the financial sector: warns that the interconnection of non-bank financial institutions (NBFI) with banks increases the risk of transferring difficulties from one to the other;

29. Highlights the importance of combining further integration with adequate safeguards addressing the home-host issue in a proportionate and credible manner;

30. Takes note of the inclusion of climate-and nature-related financial risks in the ECB’s supervisory priorities for the coming years; welcomes, among other things, the ECB’s second economy-wide climate stress test in September 2023; takes note of the conclusions of the ECB’s Occasional Paper Series No. 328 on ‘The Road to Paris: stress testing the transition towards a net-zero economy’ as it claims that the best way to achieve a net-zero economy for firms, households and banks in the euro area is to accelerate the green transition to a rate that is faster than under current policies; notes that the ECB takes into account climate- and nature-related financial risks in its supervisory practices and monitors growing physical and transition risks closely;

31. Takes note of the Commission’s proposal on transparency, comparability and quality of ESG ratings; notes that the EBA recommends that external credit assessments integrate environmental and/or social factors as drivers of credit risk whenever relevant;

Resolution

32. Welcomes the SRB’s approaches to deepening resolvability assessments by developing quality control measures for resolution plans and assessing whether these plans can be implemented at short notice; points out that, for resolution plans to be fully compliant with the legal requirements, they must include a comprehensive assessment of each bank’s resolvability, including whether substantive impediments to resolvability exist and how those impediments can be removed, including changes to a bank’s structure and organisation if necessary;

33. Welcomes that overall banks under the SRB’s remit have delivered good progress towards resolvability and in building up loss-absorbing capacity; expects this positive trend to continue recalls that achieving resolvability for all institutions should not be a ‘moving target’ and that all banks should be fully resolvable by the end of 2023; notes that further progress is needed for all banks;

34. Welcomes the new SRB Chair’s decision to undertake a comprehensive strategic review and deliver a new action plan; calls on the SRB to further improve the transparency of its decisions;

35. Underlines the importance of protecting creditor hierarchy in bank resolution and insolvency procedures; welcomes the statement by the ECB banking supervision, SRB and EBA underlining that in the EU, common equity instruments shall absorb losses and Additional Tier 1 could only be written down if the former have been fully used; recalls the need, as expressed by the SRB Chair, to fully and entirely respect the write-down hierarchy in the event of bank failure;

36. Notes that fossil fuels are the main contributor to accelerating climate change, and that many fossil fuel assets will need to be abandoned before the end of their economic life, losing all of their value and becoming stranded assets;

37. Notes the proposal to reform the CMDI framework following calls by Parliament; calls for the scope of resolution to be expanded, for the public interest assessment to be clarified, for taxpayers to be insulated from the cost of bank failures and for the scope of State aid to be limited, as well as for the mitigation of any measures which could create excessive moral hazard; calls for a rapid and effective adoption of the CMDI review;

38. Notes that a failing bank is only sent into resolution when it cannot go through normal insolvency proceedings without harming the public interest or causing financial instability; notes also that proposals for future reform include giving small and medium-size banks with a positive public interest assessment access to the EU-level resolution framework provided that they comply with the conditions for accessing the Single Resolution Fund;

39. Highlights the role of the SRB and industry-funded safety nets in protecting taxpayers from paying for bailouts; believes that contributions to industry-funded safety nets must always be calculated in proportion to the risk that the institution represents; regrets that despite the political agreement in November 2020 on an early introduction, the backstop to the Single Resolution Fund (SRF), consisting of a credit line from the European Stability Mechanism (ESM), has not entered into application yet due to the delays in the ratification process of the Amending Agreement to the ESM Treaty; stresses the importance of the SRF for ensuring a robust and credible crisis management framework; calls for the full ratification of the Amending Agreement to the ESM Treaty by all Member States including the establishment of a common backstop to the SRF;

40. Recalls that banks need to continue to meet their obligations and perform their key functions after the implementation of a resolution decision; is concerned that banks might face liquidity stress in resolution immediately after regaining market access; calls for the EU institutions to agree on a solution that provides confidence and enhances predictability;

Deposit insurance

41. Supports calls by the European Parliament EDIS negotiating team, together with the coordinators and the Chair of the ECON Committee in the statement of 7 December 2022 for an ambitious review of the CMDI framework which may help to overcome hurdles to the establishment of EDIS and for negotiations on EDIS to be resumed; concurs with the ECB’s call for the resumption of work to establish EDIS;

42. Welcomes the legislative work at parliamentary level on the EDIS proposal that has taken place since the December 2022 statement of the Parliament’s EDIS negotiating team; reiterates Parliament's commitment to working towards an agreement on an EDIS; calls for the co-legislators to work towards the establishment of an EDIS that is realistic, credible, and solid;

43. Welcomes the Commission’s efforts to clarify the scope of depositor protection and enhance convergence through a reform of Directive 2014/49/EU on deposit guarantee schemes as part of the CMDI review; underlines that although the CMDI review cannot be considered a replacement for EDIS, a more harmonised framework may help to overcome hurdles to the establishment of EDIS; stresses the importance of the risk proportionality of contributions to deposit guarantee schemes;

44. Underlines the need for a fully fledged EDIS with risk-based contributions that enables loss sharing; calls for a targeted assessment of bank asset quality; recommends starting by pooling liquidity and gradually building up an EU fund;

45 Calls for institutional protection schemes to be taken into account under any EDIS, in particular their risk-mitigating effect, while preserving the level playing field within the Single Market;

46 Recalls that one of the main objectives of the Banking Union is to break the link between bank and sovereign risks; notes that banks’ exposures to domestic sovereign debt remain high in the Banking Union; shares the EBA’s concern that sovereign exposures are material for EU banks and could become a source of potential vulnerability; emphasises that the issue of regulatory treatment of sovereign exposures must be consistent with international standards, and calls on the Commission to take this into account when addressing in any future proposals on this issue;

47. Welcomes the significant progress in risk reduction that has been made since 2015; notes, on the other hand, the limited progress on risk sharing; notes, however, that appropriate and effective risk reduction is necessary for the success of the Banking Union;

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48. Instructs its President to forward this resolution to the Council, the Commission, the European Central Bank, the Single Resolution Board and the European Banking Authority.

EXPLANATORY STATEMENT

This is the Banking Union annual report 2023.

ANNEX: ENTITIES OR PERSONS FROM WHOM THE RAPPORTEUR HAS RECEIVED INPUT

Pursuant to Article 8 of Annex I to the Rules of Procedure, the rapporteur declares that he has received input from the following entities or persons in the preparation of the report, until the adoption thereof in committee:

Entity and/or person

The Bank of Latvia

The list above is drawn up under the exclusive responsibility of the rapporteur.

INFORMATION ON ADOPTION IN COMMITTEE RESPONSIBLE

Date adopted

28.11.2023

Result of final vote

+:

–:

0:

32

7

10

Members present for the final vote

Rasmus Andresen, Gunnar Beck, Isabel Benjumea Benjumea, Stefan Berger, Engin Eroglu, Markus Ferber, Jonás Fernández, Frances Fitzgerald, José Manuel García-Margallo y Marfil, Claude Gruffat, José Gusmão, Enikő Győri, Eero Heinäluoma, Danuta Maria Hübner, Stasys Jakeliūnas, France Jamet, Othmar Karas, Billy Kelleher, Georgios Kyrtsos, Aurore Lalucq, Philippe Lamberts, Pedro Marques, Denis Nesci, Luděk Niedermayer, Lefteris Nikolaou-Alavanos, Kira Marie Peter-Hansen, Eva Maria Poptcheva, Antonio Maria Rinaldi, Dorien Rookmaker, Alfred Sant, Joachim Schuster, Ralf Seekatz, Pedro Silva Pereira, Paul Tang, Inese Vaidere, Johan Van Overtveldt

Substitutes present for the final vote

Ivars Ijabs, Janusz Lewandowski, Andżelika Anna Możdżanowska, Erik Poulsen, René Repasi

Substitutes under Rule 209(7) present for the final vote

Barry Andrews, Alessandra Basso, Theresa Bielowski, Carlos Coelho, Francisco Guerreiro, Fabienne Keller, Liudas Mažylis, Roberts Zīle

FINAL VOTE BY ROLL CALL IN COMMITTEE RESPONSIBLE

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