Donnery: Banking union needs scale, not weaker rules

Sharon Donnery, Member of the Supervisory Board of the ECB, highlighted banking competitiveness as a key topic, emphasizing that the sector's hard-earned resilience must be protected.

She noted that while the Single Supervisory Mechanism (SSM) has been active for a decade, 80 percent of banks' loan portfolios remain national, with only 2 percent in cross-border deposits.

Donnery argued that a more integrated market would offer individuals and firms greater choice and potentially more favourable interest rates.

From a competitiveness standpoint, European banks often lack the necessary scale and scalability, particularly for significant digital investments.

She stressed that while supervisors do not dictate bank size, cross-border banking is essential for a complete banking union, allowing some institutions to achieve greater scale.

Donnery also pointed to undue complexity arising from market fragmentation and nationally divergent rule transpositions, advocating for harmonisation and streamlining of the reporting framework.

Donnery addressed regulatory complexity, noting issues in capital structure and advocating for streamlining the reporting framework.

She countered industry claims of a regulatory disadvantage, stating that euro area and US banks have comparable capital requirements when factors are considered.

Donnery firmly rejected calls for lower capital buffers, emphasizing the ECB's priority on preserving resilience and adhering to international standards.

While open to constructive changes that remove unnecessary complexity, she opposed a 'second mandate' for competitiveness.

Donnery argued that such a mandate could blur objectives, distracting the ECB from its core focus on price stability and financial stability, which she views as the true drivers of competitiveness.