First Glance

Updated assessment: Memo to the commissioner responsible for financial services

Publishing date: 30 January 2025
Authors: Nicolas Véron

Published alongside Heather Grabbe and Jeromin Zettelmeyer's paper, 'Not yet Trump-proof: an evaluation of the European Commission’s emerging policy platform'.

The following text provides a follow-up to the memo to the commissioner responsible for financial services, originally published on 4th September 2024. All Memos to the European Union leadership were collected in the book, 'Unite, defend, grow'.

The European Union’s major achievements in the past decade include the successful implementation of European banking supervision and the recent establishment of a new EU agency that promises to greatly increase the effectiveness of anti-money laundering supervision¹ The EU Anti-Money Laundering Authority (AMLA); see https://www.amla.europa.eu/index_en. . But the goal of a single market in financial services, identified by Letta (2024) and Draghi (2024) as a critical component of their broader ambitions for the EU, remains distant. Banking union is unfinished in the absence of an integrated crisis-response framework, which itself cannot happen without changes to the regulatory treatment of banks’ sovereign exposures. The separate project of a capital markets union, trumpeted a decade ago by then European Commission president Jean-Claude Juncker, has failed to deliver anything big so far.

What changes as a result of Trump? Trump is likely to push financial deregulation in the United States, leading to lobbying from European banks to lower capital requirements and from multiple stakeholders to reduce the burden of sustainability-related reporting.

The European Commission’s approach. The objective for Maria Luís Albuquerque, the Commissioner for Financial Services and the Savings and Investments Union for 2024-2029, is to make genuine progress towards a better EU financial system, relabelled the Savings and Investment Union. She has leeway to choose her reform priorities. She comes to the job with solid experience of her portfolio, and therefore more personal agency than arguably any of her recent predecessors.

Assessment and updated recommendations. Calls to lower capital requirements should be resisted: the EU has paid an extremely high price for its past lapses in banking regulation. Some of the ideas being debated – such as the harmonisation of corporate insolvency law or taxation of investments, not to mention pension regimes or mortgage frameworks – are seductive but provide limited prospects of transformational EU legislation in the short or even medium terms.

Reform potential is greatest in terms of reducing the mind-numbing complexity of the current supervisory environment, which in turn will allow regulatory complexity to be reduced. Over a hundred different bodies in the EU carry out banking, insurance, pensions, audit, AML and macroprudential supervision, as well as mandatory deposit guarantee schemes and resolution authorities, each with their own requirements and idiosyncrasies. That is far too many. Greater capital markets policy integration at EU level is the only credible way to structurally alleviate the regulatory burden over the medium term without increasing systemic risk.

Reform impetus should therefore be concentrated first on an overhaul of capital markets supervision. The best design would be to restructure the Paris-based European Securities and Markets Authority (ESMA) by streamlining its governance and creating ESMA offices in EU countries. These offices would not be separate decision-making entities but would provide bridges to local market participants and their environments, in place of the current national authorities, after an inevitable transition period. Moreover, some of the numerous supervisory mandates in capital markets supervision could be led from an office other than Paris without jeopardising consistency of implementation and enforcement. That could facilitate national buy-in without sacrificing supervisory consistency.

This ‘multicentric ESMA’ concept was hinted at in July 2024 by the French Council of Economic Analysis and the German Council of Economic Experts (Landais, Schnitzer et al, 2024). European Central Bank president Christine Lagarde (2024) has also spoken about it. A reform of this kind is not easy but would be achievable if there were enough pressure from heads of state and government. If adopted quickly, it could in turn open space for a renewed push to complete the banking union in the second half of the Commission’s five-year term.

References

Draghi, M. (2024) The future of European competitiveness, European Commission, available at https://commission.europa.eu/document/download/97e481fd-2dc3-412d-be4c-f152a8232961_en

Lagarde, C. (2024) ‘Follow the money: channelling savings into investment and innovation in Europe’, speech at the 34th European Banking Congress, 22 November, available at https://www.ecb.europa.eu/press/key/date/2024/html/ecb.sp241122~fb84170883.en.htm

Landais, C., D. Sraer, M. Schnitzer, V. Grimm, U. Malmendier, A. Truger and M. Werding (2024) ‘Enhancing EU capital markets’, joint statement of the French Council of Economic Analysis and the German Council of Economic Experts, available at https://www.bmwk.de/Redaktion/DE/Downloads/C-D/cae-svg-joint-statement-enhancing-eu-capital-markets.pdf

Letta, E. (2024) Much More Than a Market, available at https://www.consilium.europa.eu/media/ny3j24sm/much-more-than-a-market-report-by-enrico-letta.pdf

About the authors

Nicolas Véron

Nicolas Véron is a senior fellow at Bruegel and at the Peterson Institute for International Economics in Washington, DC. His research is mostly about financial systems and financial reform around the world, including global financial regulatory initiatives and current developments in the European Union. He was a cofounder of Bruegel starting in 2002, initially focusing on Bruegel’s design, operational start-up and development, then on policy research since 2006-07. He joined the Peterson Institute in 2009 and divides his time between the US and Europe.

Véron has authored or co-authored numerous policy papers that include banking supervision and crisis management, financial reporting, the Eurozone policy framework, and economic nationalism. He has testified repeatedly in front of committees of the European Parliament, national parliaments in several EU member states, and US Congress. His publications also include Smoke & Mirrors, Inc.: Accounting for Capitalism, a book on accounting standards and practices (Cornell University Press, 2006), and several books in French.

His prior experience includes working for Saint-Gobain in Berlin and Rothschilds in Paris in the early 1990s; economic aide to the Prefect in Lille (1995-97); corporate adviser to France’s Labour Minister (1997-2000); and chief financial officer of MultiMania / Lycos France, a publicly-listed online media company (2000-2002). From 2002 to 2009 he also operated an independent Paris-based financial consultancy.

Véron is a board member of the derivatives arm (Global Trade Repository) of the Depositary Trust and Clearing Corporation (DTCC), a financial infrastructure company that operates globally on a not-for-profit basis. A French citizen born in 1971, he has a quantitative background as a graduate from Ecole Polytechnique (1992) and Ecole Nationale Supérieure des Mines de Paris (1995). He is trilingual in English, French and Spanish, and has fluent understanding of German and Italian.

In September 2012, Bloomberg Markets included Véron in its second annual 50 Most Influential list with reference to his early advocacy of European banking union.