The document outlines the current state and future directions of retail banking in Europe, emphasizing the need for a balanced approach to regulatory and supervisory frameworks amidst economic challenges. It highlights the importance of pluralism in the banking sector to enhance stability and serves as a call for integration of European banking markets while maintaining responsible practices. The contributions and recommendations of the European Savings and Retail Banking Group (ESBG) are presented to stimulate discussions on these essential issues in the sector.

1. Retail Banking
in Europe
The Way Forward
The European Voice of Savings and Retail Banking

3. Retail Banking
in Europe
The Way Forward
Cover concept: “The diverse landscape of banking
drives the economy forward”.

4. Acknowledgements
ESBG would like to thank its members who contributed to this report.
We would also like thank the colleagues of the consulted ESBG committees and other
ESBG working bodies for their input:
Coordination Committee
Economic Affairs Committee
Payments Committee
Supervision and Capital Requirements Committee
Accounting and Audit Committee
Corporate Social Responsibility Committee
Financial Regulation Committee
Task Force Capital Markets Regulation
Task Force Consumer Policy
Task Force SMEs
Task Force on Anti-Money Laundering and Counter Terrorist Financing
Statisticians Network
Disclaimer
The opinions and views expressed in this report do not necessarily reflect the individual
views of all ESBG Members; they are the result of a consultation process involving ESBG
committees and other ESBG working bodies.
Given current ongoing discussions with the European Commission, Lloyds TSB believes
that it is not appropriate for it to comment publicly on European regulatory issues for
the time being, and is therefore not a party to this report.

5. FOREWORD
These are interesting and uncertain times, and we cannot tell yet where they will lead us. The financial world is changing and it
is to be expected that banking itself – whether globally or in the EU – will undergo a significant transformation. Now is not the
time for concrete predictions, yet we look ahead with optimism and with the confidence that also in the times to come, Europe’s
savings and regionally oriented retail banks will drive economic growth and development, as indeed they always have. The aim
of this report is to work towards this goal by stimulating and contributing to the various relevant debates and initiatives, which
are currently shaping the retail banking sector along various dimensions.
Firstly, fervent discussions are ongoing in the context of the financial and economic crisis. At the centre of these debates stands
improving the regulation of Europe’s financial sector in all those areas where regulatory shortcomings are now recognised as
having contributed to – or as not having effectively prevented – the build-up to the crisis. For the same reasons, Europe’s
supervisory architecture is currently under revision. In parallel, however, it would be of similar importance to extend the ongoing
political discussions to Europe’s financial players themselves and to reassess the priorities of banks as regards their role in the
economy. The events of the last two years prove that, in Europe and also in the US, such a discussion on bank priorities is long
overdue. As representatives of savings banks and regionally oriented retail banks we feel that it is our role to stimulate such a
debate, since during the last two years these business models have undoubtedly reconfirmed their validity.
Secondly, the debate on the long-run integration of Europe’s banking sector and the achievability of a Single Market for retail
financial services continues. This debate on the ‘growing together’ of Europe’s national retail banking markets and on the
economic aspects of market integration is of greatest importance for the sector and for Europe. As a matter of fact, the current
supervisory and regulatory revisions will reset some of the underlying conditions for this debate, in ways which cannot yet be
anticipated. However, there are persisting central factors that determine the building blocks for any sound and reality-based vision
or strategy for the future of Europe’s retail financial services markets. As savings banks are among the oldest and most deeply
embedded providers of retail financial services, we feel compelled to point out certain core parameters which are fundamental
for any realistic debate on retail banking sector integration.
Thirdly, in the field of retail banking policy, continuous efforts are being undertaken to drive forward the integration of Europe’s
retail financial markets in practice. This applies to areas like the core retail banking business, payments, capital markets, financial
inclusion and education, and accounting. Even with the ongoing crisis, in these areas a large part of the dialogue between policy
makers and industry is in fact ‘business as usual’. Consequently, we use the occasion of this report to provide our
recommendations for the ‘retail banking’ specific policy areas currently on regulators’ agenda, and take this opportunity to
present ESBG’s expertise and views as the representative of a major part of Europe’s retail banking industry.
Without anticipating our concrete conclusions and recommendations, let us already highlight that ESBG remains true to its long-
standing positions and convictions. For both banks and banking regulators, a reality based approach is essential. For banks this
reality based approach implies the need for responsible and sustainable business models; for policy makers it means recognising
and respecting business realities and fundamental market conditions. Furthermore it goes hand in hand with internalising and
maximising the value of Europe’s pluralistic banking sector, not only for the sake of Europe’s banks but even more so for the sake
of its citizens, regions and the economy as a whole. The clear and objective goal of Europe is to make the most of its strengths.
5

6. With this insight, of course, the questions do not end. Rather, as a result of the current crisis, new questions arise, while already
established answers to old questions are being revised. Central among the new questions is whether the current economic
slow-down will lead to a change in the pace and direction of the integration debate. Looking back, during the past period of
economic growth and prosperity until the onset of the crisis in mid-2007, the approach to European market integration taken by
most EU policy makers was very ambitious and dynamic – even bullish – but unfortunately not unbiased. However, during the last
two years of financial and economic crisis and the experience of fragilities in the financial system, ensuring stable national
financial sectors and economies clearly has taken priority. Does it follow from this that dire economic circumstances reveal the
‘real’ constraints to sector integration which previously were overlooked or not binding? Do the experiences of the last two years
redirect market players themselves towards their home-markets or change their approach to market-entry and expansion? Is
sector integration, in the way previously understood and targeted by policy makers and market players, no longer a priority? Will
market players’ and policy makers’ stance on integration turn bearish and, if yes, for how long?
Looking at the evolution of new answers for old questions, a change is clearly observable in policy makers’ visions and priorities
for the future of the European retail banking market. Until two years ago, the debate was dominated by the central objective of
integration, defined as the removal of barriers to the creation of ever bigger banks. Now this approach is being counterbalanced
by the recognition that financial stability cannot be taken for granted. At the same time, there are the new additional priorities
of promoting financial inclusion, increasing consumer confidence, and achieving responsible business practices. It can therefore
be expected that regulators and policy makers will adopt – much more so than they did in the past – holistic and balanced
strategies on the basis of all these criteria. As a result, the very nature of the integration debate is likely to change and to become,
indeed, more pluralistic.
For us as savings and retail bankers this change in the political trend comes as a great confirmation. Europe’s savings banks and
regionally oriented retail banks have always been critical towards a one-sided approach to integration: it neither internalised the
stabilising impact of Europe’s pluralistic banking landscape and its beneficial effects for competition, nor did it take sufficient
account of the socioeconomic role of banks and the necessity of guaranteeing financial stability. The events of the last two years
have clearly demonstrated that Europe needs a pluralistic banking sector as well as a circumspect and balanced approach by policy
makers. For all these reasons the new direction in the integration debate appears promising and could ensure that the benefits
of an integrated European financial market will be more equally distributed. Furthermore, there is reason to hope that integration
will become not only fairer, but also safer.
It is evident that the European debate on retail banking integration is nearly as diverse, dynamic and multidimensional as the retail
banking sector itself. Both bankers and policy makers are learning necessary lessons. By building on realistic foundations, Europe
and its banks will move forward carefully, but also with confidence.
Heinrich Haasis Chris De Noose
ESBG President Managing Director WSBI/ESBG
6

7. TABLE OF CONTENT
Foreword 5
Executive Summary 9
Who is ESBG? 17
1. ESBG – The European voice of savings and retail banking:
identity, values and tradition 17
2. ESBG members in the European banking landscape 17
2.1. ESBG members – integrated within the European banking sector 18
2.2. ESBG members – a substantial part of the European banking sector 18
3. ESBG and responsible banking 19
Part 1 – The financial and economic crisis: ESBG key-messages
and contributions 23
Setting the scene: the current financial and economic crisis –
an unprecedented experience 25
1. Crisis, banks and economy – ESBG views on lending, business ethics
and state aid 27
1.1. Retail banking and the real economy – bank lending during the crisis 28
1.2. Views on banks revisited – back to the roots of the business? 31
1.3. State support to the banks and related trade-offs – which approach
should be taken? 33
2. Policy responses at the EU Level – ESBG views on the chosen approaches 37
2.1. EU actions as part of the global approach to crisis prevention –
revision of existing regulatory and supervisory frameworks 38
2.2. EU actions as part of the global approach to crisis prevention –
widening regulatory outreach 40
Part 2 – European retail banking market integration:
core parameters for a reality-based approach 43
Setting the scene: the long-run debate on the integration of Europe’s
retail banking markets 45
1. Retail banking realities and their implications for market integration 47
1.1. Local demand for retail banking products and services 48
1.2. Distribution of retail banking products: does retail banking become
‘less local’? 51
1.3. Competition in retail banking 54
2. Diversity: heritage and future for the European retail banking market 59
2.1. Banking practices: EU comparisons – EU diversity 60
2.2. Europe – rich in market players 63
2.3. Pluralism in the EU retail banking market 65
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8. Part 3 – EU retail banking policy: ESBG contributions and recommendations 69
Setting the scene: the EU approach to financial sector policy and
ESBG’s contributions on the basis of the ‘Market Model’ 71
1. Banking supervision 73
1.1. The EU institutional arrangements for supervision 74
1.2. The EU regulatory framework 80
1.3. Deposit Guarantee Schemes 87
2. Financial reporting I – Fair value accounting 91
3. Financial reporting II - IFRS and SMEs 97
4. Wholesale payments and settlements infrastructure 103
5. Capital Markets I – Securities 109
5.1. Markets in Financial Instruments Directive (MiFID) 109
5.2. Prospectus Directive 114
5.3. Market Abuse Directive 116
5.4. Transparency Directive 117
6. Capital Markets II – Asset management and investment funds 119
6.1. UCITS 119
6.2. Alternative investment fund managers 121
6.3. Packaged retail investment products 122
7. Consumer policy in the area of retail financial services 125
7.1. Consumer credit 127
7.2. Mortgage credit 129
7.3. Distance marketing of consumer financial services 133
7.4. Consumer redress 135
7.5. European contract law 137
7.6. Consumer rights 139
8. Retail payments 141
9. Anti-money laundering, counter terrorist financing and financial institutions 151
9.1. The third anti-money laundering directive 152
9.2. Compliance at group level 155
9.3. Financial action task force – FATF 156
9.4. Proliferation financing 158
9.5. Financial sanctions 160
10. SME financing 163
11. Financial inclusion 171
12. Financial education 175
Concluding remarks 179
Annex 1 181
Part 1 – Structural and financial data 181
Part 2 – EU Payments Data 197
Annex 2 203
ESBG Charter for Responsible Business 203
Bibliography 213
8

9. EXECUTIVE SUMMARY
Who is ESBG? ESBG is the voice of Europe’s savings and regionally oriented retail banks. ESBG’s members share a long
European banking tradition and form an integral and substantial part of Europe’s retail banking landscape. True to
their origins, they subscribe to the principles of responsible retail banking, as summarised in the ESBG Charter for
Responsible Business.
The ongoing financial and economic crisis challenges many long held views on the financial sector itself and on the appropriate
regulatory and supervisory framework. At the same time, the long-lasting EU debate on financial sector integration continues at
both the political and the policy level. As the European voice of savings and regionally oriented retail banks, ESBG is taking this
opportunity to present its contributions on the different retail banking related issues to the new European Parliament and the
new European Commission.
This report lays out ESBG’s views and recommendations in three broad areas.
n The first part of the report addresses the current financial crisis and presents ESBG’s key messages and contributions to
ongoing political debates.
n The second part of the report takes a long term view and names and explains core parameters for retail banking sector
integration, which are essential for any reality-based strategy for the future of Europe’s retail banking sector.
n The third part of the report addresses concrete retail banking policy issues and presents ESBG’s views and recommendations
in relevant areas.
PART 1
The financial and economic crisis: ESBG key-messages and contributions
The current financial crisis sheds a new light on Europe’s banking sector and has challenged national governments to take
unprecedented action. Similarly, the crisis calls for steps in the areas of banking supervision and financial sector regulation.
Crisis, banks and economy – ESBG views on lending, business ethics and state aid
Maintaining access to credit for the real economy is essential. Fears of a severe Europe-wide ‘credit crunch’ and a break-down
in bank lending to the real economy have not materialized. This is largely due to the stabilizing and balancing characteristics of
Europe’s banking sector, and in particular to its pluralistic structure in which different bank types and business models compete
and coexist. By contributing to the overall stability of the financial system, pluralism in the banking sector truly confirms its value
for Europe’s economy and markets. In the retail banking area, many ESBG members have maintained or even increased lending
to the real economy since the onset of the crisis. This underlines the stabilising effect of regionally active and committed retail
banks and the importance of locally made banking decisions for adequate and stable financing of the local economy.
9

10. The crisis demonstrates that fundamental mismatches between the banking sector and the real economy are not
sustainable. The suddenly exposed fragility of the financial system demonstrates that the priorities of banks need to be aligned
with their true purpose in the economy. This fundamental idea is embodied in the traditional savings banks model. On a general
level, banking needs to return to a realistic and sound approach, which does not lie in a race for ‘fast’ but unsustainable profits.
For retail banking this implies a clear focus on the efficient, conscientious and responsible provision of financial services and
products to the real economy. Correspondingly, a uniform banking sector whose behaviour imperils the wider economy can no longer
be an acceptable vision for policy makers nor for some parts of the banking sector. It is the duty and responsibility of policy makers to
safeguard a pluralistic sector in which the principles of comprehensiveness, responsibility and sustainability are well represented.
The crisis has led to a wave of state aid to financial institutions. The efforts of European Commission and national
governments to support financial institutions and to guarantee financial stability are important, necessary and adequate. Still, a
central criterion is that state-aid must be granted with the clear objective to achieve or maintain the overall health of the banking
sector – it may not carry a cost to sound and healthy institutions. Any state aid measure must be designed in order to fit with the
national circumstances and needs to be adaptable to the challenges individual institutions are facing. Yet there remains some
concern that national state-aid measures can translate into persistent competitive imbalances both across markets and within
markets. Therefore policy makers need to exert all efforts to prevent state aid from affecting competition between beneficiaries
and non-recipients. This is also important as it is unrealistic to expect that competition distortions and damages to the sound parts
of the banking sector can be repaired at leisure after the crisis is overcome.
Challenges to Europe’s regulators and supervisors
The current financial crisis also challenges Europe’s policy makers to identify and correct shortcomings of the EU regulatory
and supervisory framework. The analysis of the reasons and dynamics behind the current financial markets crisis has been
progressing with great strides. EU policy makers have not hesitated to act on the lessons learned and to initiate corrections in
those areas where they have identified the need and scope for corrections. While the ongoing approach tackles a rather wide
range of policy objectives, the paramount goal of legislative initiatives is to safeguard future financial stability. Looking at the
initiatives under way it is important to note that, while great efforts are being taken to improve existing legislation and
institutional frameworks, a substantial part of the discussion also focuses on extending regulatory coverage to previously
unregulated entities and activities.
Looking at the ongoing revisions of the EU supervisory and regulatory framework, EU policy makers rightly aim to build on
existing foundations and make the best use of past achievements. ESBG would like to stress that in order to adequately take
account of the interlinkages between the different areas under the spot light, a holistic approach is vital. It is also important that
EU policy makers keep the ambition to regulate Europe’s financial sectors in a way which promotes its strengths and takes due
consideration of the diversity of its financial sector. The application of common rules under the guidance of an overarching
proportionality principle would contribute to safeguarding the valuable diversity in EU’s banking markets.
Yet some words of caution are necessary. The temptation of short-termism must be resisted not only by financial
intermediaries, but also by regulators and policy makers. A clear distinction needs to be maintained between measures addressing
immediate concerns and long-term improvements to the regulatory framework. The implementation of corrective measures needs
to be carefully adjusted to the real economic environment and to the pace at which the European economy overcomes the current
crisis. The current political momentum should not be lost, yet undue haste may ultimately prove counterproductive.
The current expansion of regulation to previously unregulated financial actors and activities is a timely and necessary
response to the lessons Europe and the world have been forced to learn in the last two years. Policy makers are rightly extending
regulation to those formerly unregulated financial market participants whose actions have contributed significantly to the crisis
or whose activities could pose future systemic risks to financial market stability. Especially the EU regulation of credit rating
agencies is long overdue, given their fundamental role in the financial sector and the potential implications for financial stability.
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11. PART 2
European retail banking market integration: core parameters for a reality-based approach
The current financial crisis and the analysis of necessary lessons and responses may dominate the current political agenda.
Yet, the long-run EU debate on a further integration of the retail banking sector is ongoing. In the second part of the
report, ESBG presents core-parameters for a reality-based European approach.
Retail banking realities and their implications for market integration
Of key importance for any approach to sector integration is that retail banking is a local business: Demand for retail banking
is local and the business itself builds on personal contact between banks and customers (relationship banking). With regard to
SMEs the local dimension of retail banking is even more crucial, since an adequate bank-customer relationship builds on detailed
knowledge of the SME and its business environment. Consequently, branch networks are essential for comprehensive retail
banking. Online banking facilities are becoming increasingly wide-spread; they complement, but do not reduce, the importance
of proximity. Not only does the local character of retail banking set the rules for banks’ business strategies, competition and
market entry, also the financial inclusion of Europe’s regions builds on full coverage of branch networks. For the further
integration of Europe’s retail banking markets the importance of proximity means that successful entry into new markets requires
substantial investments in branch networks and in local knowledge. This is especially true since the essential factor for banks’
success is customer satisfaction. ‘Pure’ cross-border provision of retail financial services on a large scale is an unrealistic proposition
due to lack of demand and lack of suitability for the business at hand.
For these same reasons, distance marketing techniques – for example ‘direct banking’ – cannot substitute physical bank
branches. Looking at the natural constraints of the ‘direct banking’ business model (with its near exclusive reliance on the
internet as a basis for contact with customers), it becomes apparent that its economic benefits can be dubious – especially in a
cross-border context. It neither promises comprehensive coverage in terms of retail banking services, nor is it certain that the
consumers’ deposits are optimally used to fund economic actitvity.
Any conscientious assessment for the scope for more sector integration needs to take into account that retail banking
competition is multi-dimensional. A vital part of competition goes beyond prices (fees and interest rates) and works via
customer satisfaction and trust, depth of service, and regional coverage. Therefore customer choice is always a trade-off between
‘hard’ factors and ‘soft’ factors, which in turn may be reflected in prices. For integration this means that any market entrant has
to compete not only in terms of prices, but also to meet a range of wider criteria demanded by customers. Furthermore, at the
national level, Europe’s banking markets are already characterized by high levels of competition. Since retail banking is local, this
translates into intense competition at the EU level.
Diversity in retail banking and sector integration
Looking at banking practices, sector structures and market participants, the diversity and pluralism of the EU retail banking
sector is striking. This richness in retail banking practices and the pluralism of market players are the results of different banking
traditions and the adaptation to different economic environments.
The differences in demand for retail financial services all over Europe are – to a large extent – a result of differences in cultural
and socioeconomic factors, savings cultures, housing and labour market specifities and government policies. Differences in
banking practices, in product design or pricing patterns consequently stem from an adaptation to specific features of demand
and underlying conditions.
Similarly, in each country the structure of the financial sector reflects the needs of the producing sector and citizens, and
therefore the structure of the economy itself. As a logical consequence sector structures vary accordingly across Europe.
ESBG has always emphasized that pluralism in the retail banking sector is an asset for Europe: it benefits the real economy,
drives competition and increases financial stability. Pluralism ensures that the European banking sector is more than the ‘sum of
its parts’. As regards the integration of Europe’s retail banking market, it is therefore essential for Europe to make the most of its
strengths and to develop an integration strategy which respects and appreciates the diversity of market players.
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12. PART 3
EU retail banking policy: ESBG contributions and recommendations
Part 3 of this report presents ESBG’s views and recommendations on the retail banking related policy issues currently under debate.
Banking supervision
The EU debate on banking supervision has gained momentum with the outbreak of the financial crisis. The recent market events
have, however, not changed ESBG’s belief that reforms in this area have to build on the strengths of the current framework –
such as the strong involvement of the national supervisory authorities.
Looking at the changes currently envisaged, ESBG supports the combined focus on micro and macro prudential supervision.
Of particular importance is the new focus on macro-prudential aspects of financial stability. Here, the main challenge will be to
ensure that the future EU macro-prudential body on financial stability will effectively and efficiently carry out its tasks.
Turning to micro prudential supervision, ESBG generally supports the establishment of a European System of Financial Supervisors,
which will be a decentralized network of national supervisors with coordinating roles for the envisaged three new ‘European
Supervisory Authorities’.
The financial crisis has also revealed weaknesses in the current prudential regulatory framework. Yet, this does not mean that
it is necessary to completely overhaul the rules in place. EU policy makers should correct the identified weaknesses by building
on the Basel II framework.
As regards the process to be followed, repairs to the regulatory framework should observe the ‘Better Regulation’ approach.
In addition, the timing for the introduction of new rules is important, as measures which would have positive effects in the long
run could prove counterproductive if introduced in the current exceptional market conditions.
ESBG supports the efforts to ensure the appropriateness of rules in areas such as securitization or banks’ trading book. At the
same time, it has to be ensured that the new rules envisaged are a true response to the identified problems and do not endanger
practices that have proven their effectiveness from a market stability or risk management perspective.
ESBG welcomes the recently adopted revised version of the Deposit Guarantee Schemes Directive, which reflects the
importance of Deposit Guarantee Schemes for stability in financial markets and consumer confidence. As regards the additional
changes to the Directive currently envisaged, the different national Deposit Guarantee Schemes should be maintained, as they
have the important advantage of attributing local responsibility and social control. Finally, no further reduction of the payout
delay, which would come “on top” of the reductions introduced by the revised DGS, would be manageable.
Financial reporting I – Fair-value accounting
In its 1999 “Financial Services Action Plan”, the European Commission announced its intention to improve the Single Market for
financial services. One of the objectives was to obtain a single set of accounting standards for all European listed companies
that was better adapted to the increased use of financial instruments. The standards chosen were the International Financial
Reporting Standards (IFRS)/International Accounting Standards (IAS) which introduced the accounting notion of fair value.
Fair value changed the philosophy of national accounting standards as it introduced the idea that assets and liabilities had to be
re-evaluated on a regular basis according to their current market value. Fair value encountered a lot of attention from both sides
of the Atlantic in light of the financial crisis. During autumn 2008, numerous changes in the standards related to the valuation
of financial instruments at fair value (mostly concerning the accounting standard called IAS 39) were introduced. All of these
changes aimed to provide flexibility in the application of fair value – especially concerning the measure of financial instruments in illiquid
markets. In early summer 2009, proposals were issued to replace fair value guidance contained in various IFRS with a single,
unified definition of fair value, soon followed by a proposal to replace IAS 39 by a new standard. The ongoing discussions concern
the pro-cyclicality effect of fair value, the valuation of illiquid assets and the fair value classification rules in balance sheets.
12

13. ESBG strongly supports a more flexible application of fair value when it comes to illiquid financial instruments but also defends a
practical approach to the relationship between fair value accounting and the economic downturn. Over-reliance on market value not
only significantly increases pro-cyclicality, but also results in providing an inaccurate image of a company’s financial situation.
There is a need for more user friendly, simpler and more standardised rules of fair value disclosures and calculation requirements.
More coherence between American and European accounting standards is necessary. Additionally, a higher degree of harmonisation
between fair value requirements is demanded by financial reports and those required by supervisory regulations. Better transparency
would benefit both users and preparers of financial standards as it will diminish their workload and strengthen the European
Single Market.
Finally, it is very important for the EU to adopt measures on fair value that take the exceptional circumstances in the markets into
account and are in line with the measures taken in the United States. Thorough reconsideration of the existing accounting
practices and accounting rules is necessary in the long term.
Financial reporting II – IFRS and SMEs
Small and Medium-sized Enterprises (SMEs) form the backbone of the European economy and savings banks are their natural
business partners. In order to improve the Single Market, the European Commission has proposed adapting accounting
requirements for SMEs and for publicly traded companies. The Commission’s initiatives include a reduction of the reporting
burden for SMEs and the endorsement of a common set of accounting rules for listed companies – the International Financial
Reporting Standards (IFRS). The International Accounting Standards Board (IASB) took the initiative to propose an extension
and a simplification of IFRS accounting rules for SMEs. This initiative raised controversial discussions amongst stakeholders and
policy makers involved.
In general, savings banks do not have any strong preference on the accounting standards that their SME clients apply. More specifically,
ESBG members can adapt to the accounting standard used by SMEs, be it a national General Accepted Accounting Principle or
on an international accounting standard specifically designed for SMEs. Therefore, ESBG’s major interest is to ensure that SMEs
benefit from the best possible accounting standards both in terms of simplicity and comprehensibility.
Against this background, the IFRS for SMEs should be an option. In addition, substantial reductions of disclosure requirements
are still necessary. With regard to the IASB proposal to revise the standards every three years, the time frame for modifications
and further developments of the standards should be extended in order to avoid additional administrative burden for SMEs.
Concerning the content of the IFRS for SMEs, ESBG, being the natural business partners of SMEs, defends a practical, cash-flow
and solvency oriented approach.
Finally, the scope of entities obliged to report in accordance with full IFRS should not be expanded to include banks and insurance
companies as being publicly accountable entities unless they are capital-market oriented.
Wholesale payments and settlements infrastructure
Concerning wholesale payments and settlement infrastructure, ESBG supports the continued development of central bank
infrastructure that effectively enables finality and certainty. Yet the public good dimension of these initiatives should not be lost
from sight, as this is one of the core factors which distinguish them from commercial initiatives. As a consequence, particular care
should be paid to ensuring that the level playing field is not even inadvertently jeopardized, for example by constraints that make
direct access to payment and settlement systems unattractive.
Capital markets
The Financial Services Action Plan (FSAP) has introduced substantial changes to the rules in place to ensure the safety, integrity and
accessibility of Europe’s financial markets. Important pieces of legislation include MiFID, the Prospectuses Directive, the Market
Abuse Directive and the Transparency Directive. After a phase of adoption and implementation, the time has now come to review
these texts: the best should be made out of this opportunity to correct errors and assess the effects of the measures in place.
13

14. It is still premature to draw final conclusions on the Markets in Financial Instruments Directive (MiFID). This being said, and
also due to the heavy cost associated with compliance, a period of continuity and contemplation is now necessary so that the full
effects of MiFID can unfold and be assessed. This is the case not only for the conduct of business related aspects of MiFID, but
also for all the provisions which will undoubtedly significantly change the shape and structure of Europe’s financial markets. A
subsequent and realistic assessment of MiFID should not only aim at identifying weaknesses and reducing any excess burden; it
also should honestly take stock as to whether MiFID equally benefited all market participants and whether the principles of
subsidiarity and proportionality were fully respected.
The Prospectus Directive has already demonstrated its viability and has brought about some improvements. Therefore, its
upcoming revision should focus on further reducing burden, also taking due account of the retail banking realities and of the
specificities of smaller banks. This would imply raising the size-threshold for the exemption of smaller credit institutions, given the
substantial burden associated with providing a prospectus.
As regards the recent developments relating to asset management and investment funds, ESBG welcomes UCITS IV, which
benefits investors and further improves the internal market for collective investment in transferable securities. Looking ahead, it
is of great importance to preserve the spirit of UCITS as safe products for retail investors.
ESBG supports the decision to initiate regulation of Alternative Investment Funds. Yet ESBG is concerned about a number of
vague elements in the Commission’s proposal for a Directive, which is currently being assessed. Furthermore, ESBG welcomes the
ongoing initiative to explore how a framework for all packaged retail investment products could work in practice, anticipating
already that in this area a flexible approach is necessary given the diversity in existing products.
Consumer policy in the area of retail financial services
In recent years, consumer protection has become one of the cornerstones of European policy in retail financial services.
The European Commission aims to improve the relationship between citizens and financial market players, thereby increasing
consumers’ confidence in the European Single Market and promoting a level playing field for competition within the financial
sector. Yet the Commission has continuously underestimated consumers’ reluctance to purchase financial products on a cross-
border basis because they prefer the face-to-face communication with their financial service providers.
As regards the area of consumer credit, the recent Consumer Credit Directive aims at granting consumers with an appropriate
degree of protection. However, the Directive imposes additional, unnecessary administrative burdens on financial institutions.
Furthermore, the Directive causes uncertainties regarding topics such as overdrafts, pre-contractual information, the definition of
the annual percentage rate of charge, early repayment and the right of withdrawal. Therefore, further clarifications of these
aspects in the Consumer Credit Directive are necessary.
In the area of mortgage credit, ESBG welcomes the different initiatives of the Commission to thoroughly assess possible future
developments in order to increase the cross-border supply of mortgage credit. The most important initiatives being taken are,
among others, the revision of European Standardised Information Sheet (ESIS), the study on the costs and benefits of different
policy options for mortgage, the study on land registration, property valuation and foreclosure procedures, credit histories and
the announced package on responsible lending and borrowing. Generally, ESBG welcomes the voluntary self-binding approach
of the industry to meet consumers’ actual needs and notes that future mandatory rules should not aim at going beyond those
needs. Against this background, the package on responsible lending and borrowing should achieve a fair spread of responsibilities
between consumers and lending institutions.
Concerning consumer redress, ESBG supports the Commission’s initiatives to reinforce the provisions of effective and efficient
dispute resolution and redress mechanisms for consumers. ESBG favours out-of-court settlement procedures and stresses the
need for the further assessment of existing redress and alternative dispute resolution systems at the Member State level.
In the context of European contract law, ESBG supports in principle the initiative of a handbook to achieve a coherent and
consistent European legislative framework. Nevertheless, for a future Common Frame of Reference an open exchange of views
as well as an appropriate impact assessment are called for. Furthermore, there is concern about the legal basis for the Common
Frame of Reference.
14

15. In general, ESBG supports the initiatives of the Commission to simplify and to make European consumer rights legislation
consistent, but believes in the need to strike the right balance between consumer protection and the industry’s competitiveness
and therewith the functioning of the retail financial market.
Retail payments
A strategically critical part of retail banks’ activities concerns payments. Firstly, concerning retail and commercial payments,
ESBG observes that the Single European Payments Area (SEPA) will to great extent be a product of political vision and
legislation. Here, the current approach to regulate a function performed by market players (payment account, payment services)
rather than market players themselves on the basis of their institutional status is a major – and still untested – legislative
innovation. In concrete terms, the success of SEPA, first and foremost depends on the adoption of SEPA payments instruments
by national authorities. Ultimately, however, the goal of the SEPA project must be to fulfill the interests of those who are to
become its beneficiaries, i.e. the retail customers.
Anti-money laundering, counter terrorist financing and financial institutions
In order to protect the global financial system from illicit financial activities and to enhance the integrity of financial markets, the
prevention of money laundering and of the financing of terrorism is essential. In Europe, the creation of the Single Market provides
advantages for business and consumers. It also increases the opportunities for money laundering and financial crime activities.
Therefore, ESBG welcomes the Commission’s initiatives in this area, such as the Third Anti-Money Laundering Directive.
One of the concerns is the extent of the legal obligation to identify and verify the identity of a customer and a beneficial owner
which can be difficult. Credit institutions do not have access to sufficient and reliable information to carry out such an intensive
identification. Moreover, there is a need for clearer guidelines on the extent of investigation which banks need to undergo in
order to be considered compliant with the rules on beneficial ownership.
Another related area is the fight against proliferation financing in which ESBG members are very active. At the same time,
the expectations of what financial institutions are able to contribute in this fight must remain realistic. Financial institutions often
do not have the insight into the underlying business transaction and details required to pass a judgement on the possibility of
proliferation financing as being the underlying aim of the financial transaction. In this respect, the red-flag indicators of the
Financial Actions Task Force which serve to help identify transactions with a potential proliferation background, are not suitable.
Thus, ESBG calls for describing characteristics in clear and unambiguous terms, not containing elements requiring further
individual assessment.
During the drafting process of the financial sanctions, European regulators and international organisations should take the work
of credit institutions in practice more into account in order to ensure a better and effective implementation.
Looking ahead, ESBG welcomes effective regulatory initiatives in the future and will actively participate and share the industry’s
experiences in order to maintain realistic expectations as to what financial institutions are able to achieve in practice.
SME financing
ESBG members, traditionally natural business partners of SMEs, are among the most important providers of SME finance and
important partners to microenterprises. Therefore, ESBG in general welcomes the measures taken by the European Commission
towards improving the business environment for SMEs. However, there is still work to be done in the area of administrative rules
and regulations, access to finance in the form of financial support programmes, microcredit and lending, cross-border activities,
and CSR for SMEs. In the context of the Small Business Act for Europe, ESBG agrees that the policies for SMEs need to be
coordinated at the EU level and should be subject to the ‘Think Small First’ principle in order to avoid excessive administrative
burdens for SMEs.
15

16. Furthermore, the registration procedure for setting up an SME, access to the Single Market, and the ability to operate cross-
border all need to be enhanced for SMEs. Regarding the financing of SMEs, it is necessary to bring coherence, to communicate
and to clearly define the aim and target groups of different existing European financial support programmes. With regards to
the provision of microcredit, the EU focus should primarily be on facilitating microcredit at the national, regional or local level
– as close to the client as possible. In any case, support measures in favour of microcredit on the EU level, such as the JASMINE
initiative should be targeted to all intermediaries in order to reap the full benefits of microcredit in the form of growth and
job creation.
Financial inclusion and financial education
Serving the general interest of society is the savings banks’ initial purpose and an integral part of their identity. For a stable society,
economy, and well-functioning financial system, it is necessary and desirable to have knowledgeable European citizens who are
well-informed in financial matters and who have access to the financial system. Therefore, ESBG generally welcomes the current
discussions on financial education and financial inclusion at EU level.
However, as promoters of financial inclusion for all citizens, ESBG strongly advocates for a strict application of the principle of
subsidiarity and for dealing with financial inclusion at the national level. This is also the case involving access to a bank account,
which is one of the most crucial parts of financial inclusion. Specific approaches tailored to different national, regional or even
local contexts and traditions are needed where the problem of financial exclusion occurs. Financial institutions should offer
specific adapted products and services, provide adequate information and financial education. However, initiatives to foster
financial inclusion and enhance access to basic banking services should always be taken on a voluntary basis and cannot be
imposed on banks by regulation.
As a representative of financial institutions with a strong commitment to Corporate Social Responsibility (CSR) ensuring the
empowerment of consumers, ESBG considers that the financial education of citizens is a task to be dealt with at the national
level. Stakeholders have a responsibility in fostering financial education. Government and public institutions should provide policy
orientation and raise awareness, while financial institutions should be involved in creating financial education programmes and
schemes. Here, many savings banks play a key role in educating people on finance and budget matters, far beyond their actual
clientèle. These savings banks have the necessary knowledge and expertise to share best practices.
16

17. WHO IS ESBG?
1. ESBG – The European voice of savings and retail banking: identity, values and tradition
The European Savings Banks Group (ESBG) is the voice of savings and regionally oriented retail banks in Europe. Together, ESBG members
represent about one third of the retail banking sector in Europe with total assets of EUR 6,028 billion (as of 1 January 2008).
ESBG members are modern and innovative providers of retail banking services. They form a cornerstone of Europe’s pluralistic
banking sector, which is distinguished by its diversity of banking traditions and business models. At the same time, ESBG members
do not form one uniform block and a ‘proto-type’ savings bank does not exist. Rather the savings banks’ universe itself is very
diverse. This diversity reflects differences not only in the evolution of the savings banks themselves, but also in the underlying
economic and political conditions in their national markets. Overarching this diversity, however, is a shared business approach and
shared values which constitute a strong common denominator.
The strongest common link between ESBG members is their values. All banks and institutions represented by ESBG stand for
socially responsible banking that brings a return to society. At the same time they are efficiently operated, competitive institutions.
In broad terms, ESBG members are characterized by what we call the three “R”:
n Retail: they are active in providing retail financial services for individual consumers, households, SMEs and local authorities;
n Regional: they are often organised in broad decentralised networks providing local and regional outreach and offer their
services throughout their region;
n Responsible: they have reinvested responsibly in their region for many decades and are one distinct benchmark for corporate
social responsibility activities throughout Europe and the world.
ESBG members include savings banks, their descendants and other retail banks that subscribe to similar values. Although their
organizational structure differs from country to country, they have evolved from common roots and a tradition established in
many parts of Europe in the 19th century. This tradition fostered a culture of savings among the poorer classes of the population
so as to create some level of financial security in times of adversity and old age. The savings that were collected in this way were
reinvested in the local ‘real economy’ and also used to finance cultural and social projects for the benefit of the community.
This original business philosophy continues to have a fundamental influence on the business approach of the savings and retail
banks that make up the ESBG membership.
2. ESBG members in the European banking landscape
As banks and providers of retail financial services, ESBG members make up a large and substantial component of their local and
national economies and form an important part of Europe’s pluralistic banking landscape. This is underlined by the data presented
in the following sections (all tables referred to can be found in the Annex 1 - Statistics, Part 1).
ESBG members range from individual banks to national banking associations, networks and groups. ESBG’s direct members, as well as
the different credit institutions represented by ESBG at the EU level are presented in Table 1. In the following, information on
ESBG members is juxtaposed onto data on the EU banking sector as a whole, drawing mainly on data collected by the ECB.
17

18. 2.1. ESBG members – integrated within the European banking sector
With regard to the national banking sectors, the numbers of independent credit institutions active in Member States differ
strongly.1 In part, of course, this is a result of differences in country size and in the importance of the financial sector as an
industry. Nevertheless, structural differences play a role also. In several countries the banking sector is characterised by the
presence of a large number of smaller banks – often organised in networks and/or operating within a limited geographical radius.
In other countries the total number of credit institutions is comparatively low. The numbers of credit institutions represented by
ESBG in selected countries largely reflect the structural characteristics of the national banking markets. This demonstrates that
the organisation of savings banks is inherent in the evolution of national banking traditions.
A remarkable development over the last decade is that the number of banks has decreased substantially in most countries.
This is due mainly to a high degree of sector consolidation. This development is also reflected in the evolution of the savings banks
sector. Yet, looking only at the time-span between 2005 and 2007, many Member States (and not only new Member States) have
in fact experienced an increase in the number of banks. The general trend of consolidation in the national banking sectors is
strong, but not persistent, also as a result of market entry by new banks.
Looking at banking sector assets in the EU, it is evident that assets in the financial sector are largely driven by the total size of
the economy, and also by the importance of the national financial industry as an economic and export sector.2 These factors are
also reflected in the size of ESBG members in terms of assets.3 Furthermore, to grasp correctly the importance of ESBG members
in the banking sector (as regards assets) it must be taken into account that they traditionally focus on retail banking, and that
hence many of them may hold a smaller share of wholesale financial assets than other market participants. All in all the numbers
confirm that, in terms of assets, Europe’s savings and regionally oriented retail banks are clearly important players in their economies.
As regards employment within Member States, the banking sector is a significant industry.4 Furthermore, employment in the
banking sector as a share of total domestic employment is comparatively stable across Member States – with the obvious
exception of those markets which specialise in and ‘export’ financial services. Yet, different banking activities differ in employment
terms and, compared to other forms of financial services activity, retail banking is particularly labour intensive. Therefore it is not
surprising that many ESBG members are large employers in absolute terms, as well as within their national financial sectors.5
2.2. ESBG members – a substantial part of the European banking sector
A central feature of retail banking is the importance of banks’ local presence and therefore of bank branches.6 Given their retail
banking focus it is therefore natural that ESBG members run large branch networks.7 They also are well represented within their
national markets, as indicated by their generally substantial share of total branches within the domestic banking markets. In more
general terms, this demonstrates – and is inherent in – their important role in the national retail banking infrastructure.
Throughout the EU as well as for ESBG members, the great relevance of branches is mirrored by the importance of ATMs.8
Here it is remarkable that the whole EU banking sector and ESBG members alike are generally distinguished by a high and steady
increase in the number of ATMs. ESBG members’ often substantial shares of the total number of ATMs in a given national market
are characteristic of their importance as retail banking providers.
The points made above are further underlined by the number of bank branches, banking sector employees and ATMs per
million inhabitants in each country.9 Such a comparison not only demonstrates the depth of national financial infrastructure
(EU data), but also illustrates how deeply embedded ESBG members are in their markets.
1 See Table 2.
2 See Table 3A.
3 See Table 3B.
4 See Table 4A.
5 See Table 4B.
6 See Table 5A for the total numbers of branches in the EU, as well as their evolution.
7 See Table 5B.
8 For numbers in the EU see Table 6A, for ESBG members see Table 6B.
9 See Table 7.
18

19. Looking at ESBG members’ market shares, the importance of Europe’s savings banks and regionally oriented retail banks in their
traditional markets is clearly reflected. In core retail banking activities like savings deposits and the lending to households,
many ESBG members play a significant role in their domestic markets. Similar patterns are evident for consumer credit and
residential mortgage loans.10
However, ESBG members not only perform strongly as lenders and deposit providers. True to the character of stable ‘savings’ banks,
they also draw to a high degree on non-bank deposits for their funding – generally beyond the average in their national markets.11
3. ESBG and responsible banking
ESBG member banks have a strong commitment to sustainable development and address their corporate social responsibility
(CSR) as an integral part of their business. In this context “CSR” is defined as a concept whereby companies integrate social and
environmental concerns into their business operations and their interaction with their stakeholders on a voluntary basis.
The ESBG Charter for Responsible Business
ESBG members’ consistent commitment to sustainable development and CSR in their local communities and regions has been
formalised with the adoption of the ESBG Charter for Responsible Business by the ESBG General Assembly in May 2008. At the
same time, the ESBG General Assembly adopted a Resolution on the Environment. The texts of the Charter and of the Resolution
are available on the ESBG website: http://www.esbg.eu/.
The ESBG Charter for Responsible Business contains a number of principles under the general headings of:
n Fair and clear relations with customers;
n Promotion of accessibility and financial inclusion;
n Environment-friendly business;
n Making a responsible contribution to the community;
n Responsible employers;
n Communication.
The ESBG Charter serves as a rubric for the responsible banking activities of the member institutions. This does not, however,
imply that it is a guide for companies. Rather, it is a compilation of overarching principles that categorise the aspirations as well
as the activities already undertaken by ESBG member institutions. Below are some examples of how ESBG members apply these
principles, including those related to environmentally-friendly business, in their local and regional business areas. Further examples
can be found in Annex 2 “ESBG Charter for Responsible Business: Case Studies” and on the ESBG Internet site http://www.esbg.eu/.
Fair and clear relations with customers
ESBG members enjoy the confidence and trust of large sections of the population and nurture this position through transparency
in their relations with customers. This is done in a number of different ways, such as:
n Clear and honest information on the products and services on offer as well as on the terms and conditions of use;
n Ensuring that this information is easily accessible to customers;
n Providing advice that is tailored to the needs of customers;
n Responsible advertising;
n Dealing with customer complaints quickly and efficiently;
n Considering cases of financial difficulty sympathetically.
10 See Table 8.
11 For the EU see Table 9A, for ESBG members see Table 9B.
19

20. One particularly innovative example is the following:
Caja Navarra in Spain: Plan Cantera-“civic rights for customers”
Caja Navarra (CAN) created a different business model in 2004, focussing on the needs of the community and its members.
The concept was developed as an action plan to increase customer recognition of its “Obra Social12” projects and thus to
differentiate themselves in the market. CAN decided to create an emotional link by giving its customers the rights to decide
where the profits of the bank should be invested. The Plan Cantera for the period 2007-2010 was the second stage of
this busines model. This plan includes the initiative “You choose, you decide”, of which civic banking is the key element.
Thus, clients have been given some important rights such as the right to know how much money CAN makes from each
customer and the specific contribution each customer makes to their chosen social project(s) (see Annex 2).
Promotion of accessibility and financial inclusion
Savings banks are by tradition important promoters of financial inclusion for all people. This commitment is part of their mission
and is demonstrated in the way they conduct their daily business. ESBG is certain that access to finance can and should be
increased. This can be done by offering specific products and services, by providing adequate information and by providing
financial education. Many ESBG members have introduced specific, targeted schemes to ensure that the most vulnerable parts of
the population also have access to necessary basic financial services. This entails offering a range of specific savings products,
payment solutions and credits.
This commitment is illustrated by the example below:
Microcredit programme in France – “Parcours Confiance”
In 2006, the French Caisses d’Epargne launched the “Parcours Confiance” (eng. “Fresh Start”) programme to prevent
financial exclusion. The programme aims to help customers suffering from personal and financial problems to have a better
understanding of banking products and services. This programme also allows for the possibility to provide the beneficiary
with microloans backed by guarantees. Until the end of 2008 4,495 microloans have been granted since the system was
launched in 2006. The breakdown was 3,275 personal microloans and 1,220 business microloans (See Annex 2).
Environment-friendly business
As part of their community investment activities, ESBG members have a longstanding commitment to supporting environmental
projects financially and raising public and stakeholders’ awareness on the importance of protecting and preserving the environment.
In practical terms this means:
n Introducing environmental criteria into lending policies: e.g. carrying out environmental impact assessments, complying with
recognized external environmental and social standards, certification with ISO 14001 (the international environmental
management standard), etc;
n Supporting national and international initiatives in favour of a greener financial sector: e.g. through the United Nations
Environment Programme Finance Initiative, the Carbon Disclosure Project, subscribing to the Equator principles, etc.;
12 Scheme by which all Spanish savings banks allocate their net surplus (after paying taxes and allocating provisions and reserves) to the management and financing
of community investment programmes (social, cultural, environmental, health, research, etc).
20

21. n Developing specific lines of financing for environmental projects for both private and business clients: e.g. for improving
insulation and heating efficiency for homes and business premises;
n Offering environmentally-friendly products and services such as bonds to finance renewable energy projects: e.g. “Climatic
Awareness Bonds” issued by the European Investment Bank that the Spanish savings banks sell to their clients as an
environmental product and the issue of bonds to finance wind power plants in Galicia;
n Offering socially responsible investment (SRI) products for institutional and private investors that reconcile ecological and social
objectives, using independent sustainability ratings;
n Partnership with specialised organisations to support engagement in sustainable development;
n Last but not least, a commitment to reduce the direct use of energy and resources – in particular in office buildings and
business travel in order to reduce corporate induced CO2 emissions. Efforts are also being made to reduce indirect emissions,
by bringing in environmental considerations in the choice of suppliers and through environmental awareness raising actions
with employees and customers.
Some Facts and Figures
n The Spanish savings banks contributed over EUR 2,000 million to “Obra Social13” in 2008, an increase of almost 13%
over 2007. EUR 112 million of this amount went to environmental initiatives.
n As part of their common welfare engagement, the German Sparkassen-Finanzgruppe invested some EUR 445 million in
various community projects, including environmental projects, in 2008.
n The Austrian Savings Banks Group is a market leader with a 45% share of the total market of core socially responsible
investment (SRI) in Austria, which totalled EUR 1.17 billion at the end of 2007.
n Groupe Caisse d’Epargne has laid out the following objectives:
- to cut direct CO2 emissions by 3% per year;
- to finance 1,000 projects for the environment;
- to grant 10,000 microcredits;
- to dedicate 1% of the net banking income to solidarity.
Further case study examples of the commitment of ESBG members in the area of environmentally friendly business can be found
in Annex 2.
Making a responsible contribution to the community
Savings banks traditionally embody a “stakeholder” model – seeking to bring value and return to the entire community of
stakeholders which surrounds them, and not only to their financial partners. Stakeholders therefore include investors, suppliers,
customers, employees and more generally the local community in which savings banks operate. Savings banks constantly interact
with the various categories of stakeholders, ensuring that their views are sought and given consideration at the various stages of
a given project, enabling them to make balanced and fully informed long-term strategic decisions.
Historically, savings banks have been the first intermediaries to secure the savings and investments of the local population, which
they have mobilised to reinvest and develop their surrounding communities. Building on their proximity network and their deep
knowledge of local needs, they evolved naturally to become privileged financial partners for local and regional economic projects
and have built business relationships with major actors for local development and growth. Thus, they have become the drivers of
local economic dynamism – both for the financing of infrastructure through partnership with the local authorities and for micro
projects aimed at creating jobs and reducing social exclusion. Over time, savings banks have strengthened their relationship with
local development actors by upgrading their services to adapt them to their evolving needs.
13 See definition in the previous footnote.
21

22. This commitment is illustrated by the example below:
Savings banks in Germany – Business Angels and Information Centres
In recent years over half of all start-up businesses in Germany were financed by institutions belonging to the German
savings banks group – the Sparkassen-Finanzgruppe. Entrepreneurial success often hinges not just on creativity, but also on
experience. Therefore, savings banks are increasingly assigning “business angels” to new companies via Business Angels
Netzwerk Deutschland (BAND). These knowledgeable business managers have a wealth of experience to offer to new companies,
as well as a network of contacts amassed over a long period of time which they can use to help them on their way.
In addition, the Sparkassen-Finanzgruppe has launched a central back-up service called EuropaService to provide support,
advice and information to corporate customers with regard to conducting business in the European market (See Annex 2).
Responsible employers
The 870 institutions which ESBG represents in 25 countries employ just over 970,000 people. One of the defining characteristics
of these institutions is their role as responsible employers. As such, ESBG member banks:
n Are equal opportunity employers that do not discriminate on any grounds;
n Provide high-quality jobs and good working conditions for their employees;
n Promote a corporate culture of staff identification with the employer and a strong sense of shared values among the staff
oriented towards the responsible role of the savings bank;
n Provide employees with the opportunity to achieve a good work-life balance;
n Promote training and life-long learning opportunities in order to facilitate career advancement;
n Pursue a responsible relocation and redundancy policy towards employees in case of reorganisation or restructuring.
This commitment is illustrated by the example below:
Swedbank in Sweden – Supporting Employees with the “55+Concept”
To develop the competence and well-being of its staff, Swedbank has developed a programme for staff aged 55 years and
above. The programme aims to improve efficiency, preserve competence throughout the company, and make Swedbank an
attractive employer for all ages. The programme involves keep-fit and competence development activities for employees
aged 55 and above and the opportunity to “Ease Down” by working less after the age of 58. This initiative has had a
significantly positive impact on the way these employees find their working life conditions (See Annex 2).
Communication
Transparency and consistent communication with customers and other stakeholders is a key component of the savings and retail
banking sector. The communication of activities and policies plays an important role for responsible business. Therefore, ESBG
and its members are committed to communicating with the public and stakeholders regarding their activities as socially
responsible companies and the implementation of the Charter principles.
Since 2006, ESBG/WSBI has communicated publicly on the implementation of the United Nations Global Compact Principles
through regular reports on the socially responsible activities of its members.
This work will now be enhanced by reporting on the implementation of the Charter principles based on the CSR reports of the
individual members as well as on reports on conformity with other international reporting initiatives such as the Carbon Disclosure
Project (For more: see Annex 2 and http://www.esbg.eu/).
22

23. Part 1
The Financial and
Economic Crisis:
ESBG Key Messages
and Contributions

24. 24

25. SETTING THE SCENE
The current financial and economic crisis –
an unprecedented experience
The current financial markets crisis is approaching its second anniversary. It has long
outgrown its original nature as a ‘subprime’ crisis, and has developed into a global
financial and economic crisis, which many have come to call the worst economic crisis
since the Great Depression. For two years, central bankers and policy makers around the
world have been making unprecedented efforts to stabilize national financial systems and
to prevent an economic downturn of unpredictable depth. Furthermore, large-scale
economic plans and fiscal programmes were initiated in order to pave the way to
economic recovery. By any standard, these interventions have reached a scale which
previously would have been beyond imagination.
In this report, ESBG does not aim to provide a comprehensive overview of the reasons
and developments behind the current crisis.14 Rather, the focus is on the immediate and
long-term consequences as seen from a retail banking perspective and as far as they
concern ESBG’s members. Therefore the key messages brought forward will mainly address
market structures, competition aspects and changes in regulation and the supervisory
architecture. ESBG’s contributions on these issues need, of course, to be seen in context
of the current fast-changing environment and the general unpredictability of events.
For the financial sector, the precise consequences of the crisis and of governments’
reactions to the crisis are still uncertain. The general expectation is that the global
financial sector will significantly shrink in scope and scale, though banks will nevertheless
play an even more important role in financial intermediation than at present. In many
arenas such a trend is considered part of the necessary correction of past excesses and of
the over-stretching of many banks regarding their activities and size. However, it is
necessary to distinguish between retail banking on the one hand and investment banking
and wholesale banking on the other. In fact, comparing the extent of the mismatch
between financial sector and real economy, as well as considering the ensuing problems,
it is evident that in the retail banking area the imbalances between financial sector and
real economy are much smaller. Also, the market dynamics which contributed to the
current crisis were largely driven by developments and practices in wholesale financial
markets. It is therefore the wholesale financial market and related areas on which
regulators are now focusing – and rightly so – in order to guarantee that such a crisis will
not repeat itself.
14 ESBG, however, would refer to the following reports as insightful investigations into origins and nature of the crisis:
• The “Geneva Report” (M. Brunnermeier, A. Crockett, C. Goodhart, A. Persaud and H. Shin 2009.
The Fundamental Principles of Financial Regulation. London, Centre for Economic Policy Research.)
• The “de Larosiere Report” (J. de Larosière, L. Balcerowicz, O. Issing, R. Masera, C. Mc Carthy, L. Nyberg,
J. Pérez, and O. Ruding 2009. Report by the High Level Group on Financial Supervision in the EU), and
• “The Turner Review” (Financial Services Authority. 2009. The Turner Review – A Regulatory Response to the
Global Banking Crisis”).
25

26. In this context it is also necessary to take full account of the fact that one of the trends
contributing to this crisis was excessive trust in a financial market where the leading
banks were those who followed the ambitious goal of continuous ‘over-performance’.
This led to a self-propagating culture of aiming at excessively high returns while accepting
excessively high risks and relying excessively on smooth wholesale markets for funding.
In retrospect the risks associated with such strategies appear obvious, yet, at the time,
many considered this philosophy of banking superior to more conservative banking
practices. This view was also taken by several policy makers valuing extraordinary returns
as signs of greater efficiency and progress. For these reasons it is now time to reassess
the purpose and performance of credit institutions in particular and of the financial sector
in general.
Looking ahead, the way in which Europe redefines its ‘vision of banking’ will strongly
drive the stabilization measures used and the way in which they will ultimately be
implemented at both the national and the European level. Such a vision will also
substantially shape the trade-offs Europe will still be willing to make in order to return to
financial and economic stability. Given that Europe will have to live with the
consequences of those trade-offs for the unforeseeable future, such decisions are not
made easily. However, it is of utmost importance that those parts of the financial sector
which have proved stable and sustainable are not disadvantaged or unduly burdened by
any of the schemes and actions under way or already implemented.
In parallel to political discussions and immediate stabilisation measures, steps are being
taken towards forward looking and corrective regulation initiatives. The current regulation
initiatives strongly draw on an ongoing analysis of the role played by financial sector
regulation, inter-institutional dynamics and intra-institutional decision making. On the
basis of these insights, regulators and policy makers strive to correct the weaknesses and
shortcomings of the financial regulatory framework. Furthermore it has become a declared
goal to improve the supervisory structures in place in order to ensure that supervisors will
keep abreast of the developments in the financial sector and are in the position to take
effective measures if they deem it necessary. In this context it also is a key priority to
achieve even more stability for the integrated European financial market. Here, the
differences between large banks (with potentially systemic risks and cross-border
activities) and regionally oriented institutions (involved in retail banking) need to be
acknowledged and given due consideration notably via the principles of proportionality.
All these are big challenges. In order to overcome them, it is necessary to develop a clear
and consistent vision of the future priorities of the European financial sector. It is on this
basis that ESBG contributes its views to the current discussions. Chapter 1 will explain and
assess the need for ‘revisiting’ expectations of the banking sector. Also addressed are the
current trade-offs Europe is currently making, in particular regarding competition on and
the structure of financial and banking markets. Chapter 2 summarizes ESBG’s contributions
on the currently ongoing policy measures and the discussions on the European
supervisory architecture.
26

27. 1. CRISIS, BANKS AND ECONOMY –
ESBG VIEWS ON LENDING,
BUSINESS ETHICS AND STATE AID
The financial and economic crisis is inextricably linked with the role of banks in the real
economy. This relationship is highly complex and for the present purpose ESBG would like
to focus on the following issues:
First, a differentiated view on the banking sector is particularly important when it comes
to assessing banks’ ability to maintain lending in economically difficult times. Since last
autumn the spectre of a European ‘credit crunch’ as a result of the crisis has been
omnipresent. While such a credit crunch – had it occurred – would indeed have had grave
consequences, the approach taken in the general political debate was overly simplistic in
its treatment of banks. At least initially it was widely overlooked that different bank types
are not only affected differently by financial market events, but also have different
priorities and business orientations. Furthermore, the special characteristics of Europe’s
retail banking market deserve greater recognition since they play an important role in
maintaining stability in lending to the real economy (See Section 1.1).
Second, it is necessary to reassess views on retail banks and on the banking sector in
general. In a large part of the ongoing debates it is neglected that, especially in Europe,
the ‘financial sector’ consists of a very heterogeneous group of financial actors, whose
values and orientation differ significantly. Especially in the case of banks, objectives and
positioning within the real economy drive their behaviour as lenders and their long-run
strategies. The crisis has only confirmed the values and business approaches of Europe’s
savings and regionally oriented retail banks, which should urgently be taken into account
in the ongoing public debate on the banking sector (See Section 1.2).
Third, globally and in Europe, state-interventions into the financial sector are taking place
in an unprecedented manner and scale. At the EU level, these interventions are necessary
for the stabilisation of Europe’s financial system and are being coordinated based upon
guidelines laid out by the European Commission. Yet, these interventions may alter or
create new conditions for sector integration and competition for the years to come.
Therefore, a differentiated approach is necessary given the effect the large-scale
interventions may have on national financial sectors (See Section 1.3).
27

28. 1.1. Retail banking and the real economy – bank lending during
the crisis
Key messages
n Fears of a severe European ‘credit crunch’ to the real economy have, as such, not become reality.
n Relationship-banking, proximity and knowledge are key-factors for sustainable lending.
n The overall stability of bank lending is largely due to the diversity of market participants who were not all
equally affected by the crisis. This underlines the stabilizing and balancing effect of the pluralism in Europe’s
banking sector: Pluralism is risk diversification.
n Observed decreases in lending or tightening of lending standards need to be seen in context of a recession
which affects overall demand for credit and increases the economic risks associated with lending.
Background: dramatic developments after the Lehman Brothers Collapse and
the fear of a ‘credit crunch’
Between autumn 2008 and winter 2009, following the collapse of Lehman Brothers,
conditions in the already strained financial markets deteriorated and market confidence
tumbled to new depths. In Europe, renewed concerns arose regarding the soundness of
several banks, which had strongly relied on financing from financial markets. Indeed, the
very future of several systemically important European banks suddenly seemed uncertain.
Under these circumstances it was questioned to what extent Europe’s financial sector
would still be able to fulfil one of its key functions – the provision of credit to the real
economy – at a time when the economic downturn had already become a reality.
As a result there was a general fear of a Europe-wide ‘credit crunch’ for enterprises
and industry.
In this environment several things happened: First, Europe’s national policy makers
undertook efforts on an unprecedented scale in order to support the financial sector
directly and in a coordinated manner, while following guidelines issued by the European
Commission. Second, the Commission extended the possibility for governments to
undertake interventions in the form of state aid to SMEs, also including measures
designed to stimulate bank lending to SMEs.
Yet, in spite of these measures, the fear of a wider credit crunch and the ensuing great
damage to the real economy remain prominent in the public discussion. However, there
are different interpretations of what exactly would constitute a credit crunch. For some
parties, a tightening in banks’ lending standards or a rise in interest rates already is equivalent
to a crunch scenario; others expect unaffordable loans and credit-lines, a shrinking of
overall lending volumes or even a widespread and outright denial of credit.
A verdict on whether such a credit crunch became reality depends on how a credit crunch
is defined. Equally, it is important to differentiate between the potential victims of the
credit crunch. Actors in the real economy are of great diversity, which leads to different
exposure to economic downturns as well as to differences in financing needs. In addition,
also determined by the size and structure of an enterprise, great differences prevail in
their relationship with banks or other creditors.
28

29. This being said, over the last year ESBG members’ experience is clear: A severe case of a A severe Europe-wide credit
Europe-wide credit crunch (i.e. a wide supply-driven breakdown of lending to the real crunch has not materialised.
economy) has not materialised.15 Indeed, especially as concerns the retail financial area,
ESBG finds that the European banking sector has shown a remarkable degree of
resilience. Also, the interpretation of an observed tightening in lending standards as a
‘lighter’ form of a credit crunch, needs to be assessed with caution and differentiation.
ESBG explanation: EU retail banking sector resilience – a result of its pluralistic
structure
The non-manifestation of a severe ‘credit crunch’ is, of course, partially an achievement
of the decisive actions by governments to support the financial sector and to promote
SME lending. Fundamentally, however, the observed stability in lending stems from the
resilience of the European banking system in the retail banking area and at the local level.
This resilience is due first to the fact that, in Europe, the financial markets crisis did not
turn into a retail banking crisis, given that for Europe’s retail banking sector wholesale
funding plays a less decisive role than in other parts of the world. Rather, for many retail
and savings banks, customers’ bank deposits are the dominant source of funding.
Secondly, looking more closely at European market realities, it is evident that the stability
of the sector is a consequence of its pluralistic structure, characterised by the competition
of banks with different business models on one level playing field.
The past events show that Europe’s pluralistic market culture is a great asset: the pluralism Pluralism is risk diversification
and the diversity of Europe’s banking sector are key-reasons why aggressive and – now and contributes to financial
evidently short-lived – business strategies were not the prevalent banking practice in stability.
Europe. In fact, pluralism is risk diversification, as the diversity in business models and in
market players’ priorities has protected Europe’s economy against a uniform and
‘thundering herd-like’ bank race over the edge of reason and sustainability. It is therefore
also due to the pluralistic market culture that there are many banks which are able to
maintain and even to increase lending to the economy. Hence it is the pluralism of
Europe’s banking sector which gives Europe’s economy the necessary balance and the
long breath it will need for recovery.
Another distinguishing feature of Europe’s pluralistic retail banking sector is that a large Regionally committed banks
part of the sector consists of regionally focused credit institutions, which sometimes form make regional and local
networks at a national level. This structure has a direct impact on bank lending as crucial decisions: less chances of
decisions are taken locally, according to local responsibility and judgement. Drawing on a credit crunch.
input from its members, but also by observing national banking trends, ESBG firmly
believes that ultimately Europe was also spared a severe credit crunch because locally
active and locally informed retail banks were able and willing to maintain or increase
lending – in particular if they had access to strong and stable funding through local
deposits. It is therefore evident that traditional banking elements like proximity,
sustainability and relationship-banking are critical factors to ensure that credit institutions
are able to fulfil their functions as robust lenders to the real economy in a crisis situation.
15 This observation is also backed, for example, by the June 2009 ECB Financial Stability Review, stating that “…
the marked slowdown in bank lending to non-financial corporations appears to be dominated by demand-side
factors reflecting the impact of the crisis on the real economy. According to the euro area bank lending survey,
the main drivers are a decline in firms’ financing needs for fixed investment, mergers and acquisitions, and
corporate restructuring.” (European Central Bank. 2009. Financial Stability Review June 2009. pp 56-57).
29

30. ESBG members maintain ESBG’s members have proved able and willing to continue and even extend lending.
or even increase lending. This is a result of their long-standing relationships with their clients which have earned
them a competitive advantage in the correct appraisal of risks. In concrete terms, ESBG
members, who value their relationships with their SME clients, consider it their responsibility
to support them with appropriate liquidity and funding for running their business. Of course
this applies also – and especially – in the current difficult economic situation.
ESBG explanation: the impact of the crisis on bank lending to the real economy
Europe’s pluralistic market structure helps secure a supply of credit, but observed bank
lending still depends on real economic conditions and prospects which influence demand
for credit, lending standards and mid-term lending policy. Therefore a differentiated
approach is necessary when assessing banks’ lending behaviour.
Real economic factors Based on real economic prospects, established entrepreneurs decide on profitable
have an ambiguous effect expansion strategies or future entrepreneurs assess the expected success of start-ups.
on demand for loans. Also the timing of mergers and acquisitions – which generally both need financing –
depends on growth prospects and stability in demand. On this basis the ongoing
recession and the low levels of optimism mean that demand for credit will remain low
until an economic recovery is clearly on the horizon. All these factors contribute to lower
observed levels of bank lending. On the other hand, of course, entrepreneurs may need
bridge loans, other forms of liquidity provision, or loans from banks in order to endure
the current adverse economic conditions and slumps in demand for their products.
This shows that the effect of the economic crisis on credit demand, and therefore on
observed bank lending, is difficult to identify.
Lending standards Regarding lending standards, it is necessary to appreciate the impact of wider economic
are driven by wider conditions on credit risk. As banks have a responsibility towards their depositors, they have
economic conditions. to maintain the quality of the loans they make, base their decisions on sound assessments
and price risk soundly. Therefore, lending or pricing decisions which may at first appear
as a tightening in lending or credit standards are in reality a reaction to greater credit risk
as a result of deteriorating economic circumstances. Naturally, it is also incompatible with
banks’ responsibility towards their depositors and their other creditors to lend to clients
who even in pre-crisis days could not be considered an acceptable credit risk. In general,
a bank’s knowledge of its clients is a key factor for adequate and sustainable lending and
for banks to correctly assess credit worthiness, to grant loans, and to price risk.
Ultimately banks’ ability Due to the very nature of banking, banks’ performance is inextricably linked with the
to lend is tied to economy, and therefore the business of banks contracts in a prolonged recession. Of course,
the ‘real’ economy. a bank’s business model and business outlook are decisive factors for the smoothness of
a contraction and the bank’s sensitivity to economic downturns. In particular, a strong
deposit base, a strong focus on relationship banking (i.e. close ties with clients), the
importance of long-term objectives, and the regional commitment of a bank all give
greater continuity to banks’ lending. In this sense, traditional banking models are
characterised by comparatively little pro-cyclicality. Yet, in general retail bank performance
cannot decouple from the state of the real economy.
30

31. 1.2. Views on banks revisited – back to the roots of the business?
Key messages
n Priorities of banks need to be realigned with their fundamental role in the economy – an excessive mismatch
between financial sector and real economy has to be counteracted.
n Traditional savings banks values like responsibility and sustainability are core values for sound and realistic banking.
n Europe needs a pluralistic banking sector in which the principles of comprehensiveness, responsibility and
sustainability are well represented.
Background: Why is a mismatch between banking sector and real economy
problematic?
The current crisis shows that banks are not like any other industry. First, the consequences of
a failure of the banking system for the entire economy can turn disastrous.
Second, the financial sector’s possibilities for growth and profits are ultimately
constrained by underlying economic conditions – yet, due to pricing bubbles, the limits
to sustainable growth of the financial sector may not be recognized in time. Indeed, it is
widely recognized that the current crisis is a consequence of an over-stretching of the
financial sector beyond what the real economy could support. For both reasons the
priorities of credit institutions need to be realigned with their true role in the economy.
Furthermore, from its very onset the financial crisis has highlighted that many Neglecting stability
international and European banks’ business models are much less stable than originally and sustainability
thought. By now it is universally acknowledged that many banks’ strategies were driven proves costly.
by excessively ambitious short-term objectives combined with excessive risk taking.
Simultaneously, excessive risk taking was supported by excessive trust in the ability of
mathematical models and sophisticated innovation to correctly assess and eliminate asset
risk. As a result many banks did not sufficiently strive for stability and sustainability.
ESBG recommendation: return to realism
In retrospect it is obvious that the developments in a large part of the banking sector were
not sustainable. They were not compatible with realistic long-term perspectives and did
not reflect the very purpose of financial services provision – which is to serve the real
economy. In fact, solely pressing for ever higher returns and only focussing on short-term
profits led to business and investment strategies which rather served the banks
themselves, but not necessarily the real economy. ESBG members have never shared this
philosophy and the last two years confirm their long-standing apprehensions regarding
the practice of ‘myopic banking’.
The fundamental role of banks in the economy implies that, in the medium and long-term, A realistic approach to
the business of banks is determined by real economic demand. The returns and profits of banking is based on real
retail banks are the result of ‘real’ economic factors. As a result any long-lasting mismatch economic possibilities.
between the goals of the banking sector and the needs of the real economy will correct
itself, but the pain of such corrections will reach far beyond the financial sector.
Therefore it is reassuring to observe that policy makers and market participants recognize
that the purpose of retail banking does not lie in a race for ‘fast’ and unsustainable
profits, but in the efficient and conscientious provision of financial services and products
to the real economy.
31

32. Retail banking needs The current crisis has laid bare weaknesses of several banking practices and business
a reorientation of values. philosophies. However, it also has proven the validity of selected banking approaches and
in particular the validity of the underlying principles of the savings banks sector.
Soundness, sustainability and responsibility have proven not only to protect customers,
but also to protect banks. Also it has become evident that banks cannot afford not
to know and understand their customers. Yet, successful relationship banking is a
knowledge-intensive business and takes time to build. Therefore, leaning on savings
banks’ core values, two lessons can be drawn from the crisis: It is time to give up a
‘fast-profit’ mentality and it is necessary to return to sustainable and responsible banking.
This shift in values not only has to take place in the heads of bankers, it also needs to be
internalised and encouraged by policy makers.
Differentiation within Looking at Europe’s retail banking sector, the need for a differentiated approach to retail
the banking sector banks is evident. This also means recognizing the importance of Europe’s pluralistic
is crucial. banking tradition. In fact, the diversity in business models is an integral part of the
European banking landscape and ensures the comprehensive provision of retail financial
services throughout Europe, while driving competition in the banking sector. Here, it is
reassuring that some policy makers’ bias towards one particular banking model seems to
have vanished. Also the precariousness of an over-reliance on aggressive short-term
strategies has finally been recognised. In fact, the crisis at last demonstrates that a
uniform banking sector whose behaviour imperils the rest of the economy can no longer
be acceptable. It is therefore the duty and responsibility of policy makers to safeguard a
pluralistic banking sector in which the principles of comprehensiveness, responsibility and
sustainability are well represented.
Unfettered competition Policy makers also need to take a more critical view of unfettered competition in the retail
carries a cost and cannot be banking sector. While competition without a doubt has great benefits, it should certainly
a goal for Europe. not take a form which could endanger the profitability of sound and comprehensive
business models. This, for instance, can be the case if entrants aggressively target only
the least costly and most rewarding products or services, but do not offer a wider,
more cost-intensive, spectrum of retail banking services. In such a scenario competitive
pressure in the form of “cherry picking” does not reflect greater efficiency of the
competitor. Rather it is the result of a narrow business focus which does not incur the
costs associated to offering all-round services. While such competition legally is not
‘unfair’, it certainly is not the kind of competition which will ultimately benefit customers
and the economy. On the contrary, greater losses to economy and society could occur if
the pressured ‘all-round’ banks are no longer able to continue providing the same level
and quality of services because their possibilities of doing so are systematically
undermined. Such possible undesirable consequences are neglected by an uncritical and
exclusive focus on the immediate price-effects arising from unfettered competition.
32

33. 1.3. State support to the banks and related trade-offs –
which approach should be taken?
Key messages
n ESBG welcomes and appreciates efforts to support financial institutions and guarantee financial stability.
n State aid must be granted with the clear objective of achieving or maintaining the overall health of the
banking sector. It may not carry a cost to sound and healthy institutions.
n With a view towards future developments, differences in size and scope of national state aid measures can
translate into persisting imbalances.
n All efforts need to be made to prevent state aid from creating undue competitive advantages for its recipients.
Background: Widespread national state aid to financial institutions
Since autumn 2008, when the situation on financial markets deteriorated further as a
consequence of the Lehman Brothers bankruptcy, EU Members States have undertaken
coordinated steps in order to restore confidence between citizens and banks, as well as
among banks themselves.16 These steps were designed in order to prevent bank-runs and
to restore the functioning of inter-bank markets – in short, to maintain and secure the
functioning of the national banking sectors.
As the various support measures to the financial industry constitute state aid, the
European Commission, DG Competition, provided guidelines17 in order to ensure the
compatibility of such actions with the existing EU competition rules. These guidelines set
out the acceptable measures national governments can take and establish criteria for the
applicability, necessity and size of such interventions. They aim to prevent distortions to
competition between beneficiaries of state aid and banks which are not drawing on
state-support. Looking ahead, the guidelines also seek to ensure that the beneficiaries of
state-aid return to viability in the mid to long term.
Between October 2008 and mid-July 2009, the Commission has assessed and approved
state aid schemes as well as ad-hoc interventions at individual institutions in a majority of
Member States. The large majority of the national state aid schemes are guarantee
schemes (16) and recapitalisation schemes (11) – in five cases a combination of both
measures was approved. Furthermore, outside these schemes, over 40 additional measures
directed at individual institutions were approved.18
16 European Union’s Council of Ministers for Economy and Finance (ECOFIN) conclusions of October 7th 2008.
17 European Commission. 2008. Communication from the Commission – The application of State aid rules
to measures taken in relation to financial institutions in the context of the current global financial crisis.
OJ C 270, 25.10.2008.
European Commission. 2008. Communication from the Commission – The recapitalisation of financial
institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against
undue distortions of competition. OJ C 10, 15.01.2009.
European Commission. 2009. Commission Communication on the Treatment of Impaired Assets in the
Community Banking Sector, OJ C 72, 26.03.2009.
European Commission. 2009. Commission Communication – The return to viability and the assessment of
restructuring measures in the financial sector in the current crisis under the State aid rules.
18 European Commission, DG Competition. 2009. DG Competition’s review on guarantee and recapitalization
schemes in the financial sector in the current crisis.
33

34. Banks receiving state aid Given the different national situations, the sizes of the rescue and support packages vary
compete with banks significantly across markets. Furthermore, while some countries establish very large
without state-support. national support schemes, others spend significant amounts on the support of selected
larger financial institutions. In addition, even if state-wide support schemes exist, if given
the choice, many healthy banks so far decided not to draw on such support, mainly due
to its stringent conditions and out of a preference for keeping their independence intact.
ESBG views: state aid to financial institutions – the need for balance and
differentiation
ESBG members appreciate the efforts undertaken to maintain the stability and
functioning of the European financial system which remains a top priority and is of the
utmost importance for general economic stability. The speed and decisiveness of the
actions of national governments and EU policy makers alike are truly impressive and it is
to their great merit that Europe’s financial system has escaped the acute danger it faced
over the past year. The European Commission has played a central role in these efforts by
devising different sets of state aid guidelines which capture core principles according to
which state aid shall be carried out. On the basis of these guidelines, ESBG would like to
underline the importance of a differentiated approach and undiscriminating objectives.
It is necessary to differentiate When it comes to state aid, banks can be roughly divided into four categories:
among beneficiaries
of state aid. 1. Banks which – due to their own prudence, quality of risk management, operations in
stable economic environments etc. – neither need nor desire state aid but may accept
state support in order to increase their capital base;
2. Banks with business models which in itself are sound and sustainable, but which have
been – or could soon be – affected by the economic repercussions of the financial crisis
and whose timely support contributes to the stability of their respective economies;
3. Banks where the crisis has raised a red flag calling into question the sustainability of
their business model;
4. The (rare) case of banks, which are affiliated with other sectors of industry (such as the
auto industry) and whose recourse to state aid needs to be considered against the
background of potential problems their parent companies may be facing.
The central goal of state aid The different characteristics of the national financial sectors are fundamental for the way
must be to achieve a healthy national schemes and individual interventions are designed, implemented and maintained.
banking sector. In examining the different recipients of state-aid it is essential that unviable banks be
restructured or wound-down, that viable and sound banks are supported adequately, and
that healthy banks not drawing on state aid do not have any reason to regret their
decision. Looking at the fourth group – those banks affiliated with other sectors of
industry – opportunism must be counteracted and the subsidisation of parent companies
must be avoided. No disadvantages should be allowed to arise for the ‘real’ banking
industry. The governing objective of state aid must be a healthy banking sector, not the
cure of selected banks at the cost of others.
34

35. State aid therefore has to strike a fragile balance. On the one hand, it needs to effectively State aid strikes
and lastingly help the affected financial institutions or pre-emptively signal a bank’s a fragile balance.
stability in order to prevent any upcoming disturbances. On the other hand, when state
aid measures are taken, it must be ensured that taxpayers are not taken advantage of,
that the recovery of beneficiaries does not come at the cost of competitors, and that the
financial services markets are not reorganised at the cost of those banks which have
proven functional and necessary.
The Commission also seeks to ensure that state aid does not prevent necessary Restructuring needs to
corrections to banks’ business models or the winding-down of unviable institutions. follow economic principles.
These are important principles and the restructuring of unsustainable banks can have
advantages for the sector as a whole. Nevertheless it is important that restructuring is
only imposed where there is a clear necessity for a change in business model. Also,
restructuring plans need to build on economic and business relevant criteria; restructuring
should not be imposed or dictated by political goals.
ESBG views: concerns on ‘state aid reality’
Precisely because the danger of an imminent financial sector meltdown has largely abated,
it is now the time to assess the effectiveness of implemented measures. Looking ahead,
there remain some concerns related to state aid, calling for vigilance and caution.
Not only have governments and policy makers succeeded in stabilizing Europe’s financial Differences in national state
sector, they also have striven to reduce to the minimum the undesirable consequences of aid schemes are necessary
state intervention. As part of these efforts, the national state aid measures rightly avoid but may affect the level-
a ‘one-size-fits-all’ approach and reflect the national market conditions and the playing field.
requirements of the afflicted banks. On the downside, a substantial heterogeneity in
scope and size of state aid measures can bring about greater inequality among national
banking sectors in the mid and long term. National differences in state aid schemes may
therefore impair the European level playing field for competition.
The state aid guidelines by the European Commission spell out several provisions in order Distortions to competition
to prevent distortions to competition arising from that aid. Still, within national banking need to be counteracted.
sectors, abuses of state aid – when they occur – need to be counteracted strongly.
Especially problematic are situations where state aid is granted to banks seeking access
mainly in order to achieve competitive advantages (hence, in cases where it is not
motivated solely by reasons of guaranteeing stability or of strengthening the capital
base). Such distortions can occur immediately due to strategic decisions to abuse granted
aid, for example by outbidding competitors in the retail deposit area or by advertising
bank safety as a result of government guarantees. In the longer run, recapitalization
measures may lead to competitive advantages for benefiting banks (in terms of market
funding, granting of loans, development of future plans), or pave the way towards
aggressive expansion once balance sheets are repaired. While such distortions gradually
unfold over time, they can cause lasting change in the competitive landscape and need
to be limited wherever possible.
35

36. Sound banks may In the public debate Europe is often made out to be a hospital full of financial institutions.
not be undermined. However, it is important not to forget that a large number of – often smaller – credit
institutions are in good health and sound enough not to need taxpayers’ help. This must
remain so. Therefore it is unacceptable that healthy and prudent credit institutions should
suffer due to aggressive competition by other banks, which do not draw their
competitiveness from their own merits but instead profit from external help. It is the duty
of governments and competition authorities to counteract and minimize such distortions
decisively and without bias. It cannot become a European principle that excessive risk
taking or overstretching of balance sheets by banks will be ultimately rewarded by
government support with the effect to strengthen the bank’s competitive position.
Furthermore, it cannot be that this should happen at the cost of precisely those banks
which did not need rescuing in the first place. This would not only lead to unjust
distortions to competition and incentives, but also to distortions in the very balance of the
banking sector and the weakening of inherently sound and prudent institutions.
Long-term consequences It is extremely myopic to assume that the damage to competition and to the balance of
for competition are the financial system would be a fair price to pay in order to ensure short-term financial
determined now. stability of the system. It is equally wrong to assume that Europe can only choose
between a financial meltdown and an uncritical support of all imperilled institutions.
Furthermore, it is unrealistic to expect that competition and damages to the sound parts
of the banking sector can be repaired at leisure after the crisis is overcome. Such a hope
also unduly postpones facing the consequences of important decisions when they are
made. All these are reasons why the trade-offs Europe makes now between the leeway
given to supported banks and the overall and long-term consequences for competition need
to be made consciously and with full efforts to minimize the damages they can cause.
36

37. 2. POLICY RESPONSES AT
THE EU LEVEL – ESBG VIEWS
ON THE CHOSEN APPROACHES
The clear consensus between policy makers, regulators and the financial sector
worldwide is that a crisis like the current one must not repeat itself. Accordingly great
efforts are being taken to identify the factors and dynamics which led to the build-up of
the crisis. Drawing on these insights, the general aim is to devise the most suitable and
effective actions and responses in order to correct problematic weaknesses.
The global dimension of the crisis also implies that international bodies play a significant
role. Not only do they serve as important platforms for exchange and for a coordinated
outlook into the future, but they also are important in their own right as economic actors
and contributors to global solutions. The creation of the G20 as a political force and the
steps taken to increase the role of the IMF are part of the global effort not only to combat
the current crisis but also to improve the political ability to act in order to prevent future
crisis or to meet such a global challenge should it occur again.
Regarding financial sector regulation at the global level, the Basel Committee on Banking
Supervision will continue its central work as initiator of globally applicable guidelines on
banking supervision, also on the basis of a substantially extended membership base.
Furthermore, the newly created Financial Stability Board (established in April 2009 as the
successor to the Financial Stability Forum) has the mandate to promote financial stability.
This mandate includes serving as a mechanism for national authorities, standard setting
bodies and international financial institutions in order to address vulnerabilities and
develop and implement strong regulatory, supervisory and other policies in the interest of
financial stability.
While ultimately the unifying goal of politicians worldwide is to improve the safety of
financial markets on a global scale, it is the current initiatives at the EU level with which
ESBG is most immediately concerned. In the EU, too, the central objective of regulators
and policy makers is to increase financial safety and stability. With this goal, policy makers
have set out to correct malfunctions in existing market regulation, to strengthen
supervision, and to extend the range of financial actors subject to EU regulation.
The political decision was also made to reduce the vulnerability to financial markets
events of depositors and investors – thus assuring citizens that they will be sheltered from
financial market developments beyond their control. Looking at the most important
current developments from a political vantage point,19 there are a number of
observations and recommendations that are made in the remainder of this chapter.
Section 2.1 focuses on the revision of existing regulatory and supervisory frameworks;
Section 2.2 addresses the widening of regulatory outreach.
19 Concrete policy contributions on banking supervision and capital requirements regulation can be found in Part
3 Chapter 1.
37

38. 2.1. EU actions as part of the global approach to crisis prevention –
revision of existing regulatory and supervisory frameworks
Key messages
n In their efforts to correct perceived weaknesses in the existing frameworks, EU policy makers need to take due
account of the inter-linkages between the issues at hand. A holistic approach is crucial.
n EU policy makers’ corrective actions rightly build on existing foundations.
n Diversity is an important asset for Europe – applying the proportionality principle in regulation and supervision
is the correct choice.
n The implementation of corrective measures needs to be carefully adjusted to the ‘real’ economic environment
and the pace at which the European economy overcomes the current crisis.
n The banking industry should be adequately involved in policy repair and any future supervisory structure.
Background – central ongoing regulatory efforts
At the time of writing, among the central efforts to improve EU regulation for financial
institutions stands the revision of the Capital Requirements Directive (CRD), which
transposes the Basel II Framework on capital requirements into EU law. The ongoing
discussions on the CRD reflect EU policy makers’ approach for addressing the weaknesses
revealed by the crisis. It is therefore not surprising that the measures recently adopted and
the proposals currently under consideration address issues such as the ‘originate to
distribute’ model, the prudential treatment of complex financial products (including
resecuritisations), capital requirements for banks’ trading books, remuneration (and
hence incentives linked to compensation policies), pro-cyclicality and leverage.
Also at the centre of the ongoing debates is the question of the most appropriate EU
supervisory architecture, which considers improvements as regards the prudential
supervision of individual entities (‘micro-prudential supervision’) and its adaptation to
dealing with the macro-economic dimension of financial sector risk (‘macro-prudential
supervision’). At the time of writing, the recommendations of ‘de Larosière Report’,
published in February 2009, have been firmly established as the guiding principles for a
European supervisory architecture. True to the evolutionary approach pursued in all
efforts to address the supervisory needs arising at EU level, the recommendations of the
de Larosière Report build on the existing supervisory bodies and practices, targeting
greater cooperation and coordination among national authorities, with the help of 3 newly
created ‘Authorities’. Furthermore, it recommends extending EU-level supervision to a
macro-prudential dimension, notably through the establishment of a new ‘European
Systemic Risk Board’. EU policy makers are currently working on concrete legislative
proposals on the basis of these recommendations, with the objective to have the
proposed changes implemented and working by 2010.
Furthermore, as a direct response to the sudden deterioration of the situation in financial
markets in autumn 2008 (as a consequence of the Lehman Brothers bankruptcy),
a number of EU Members States – initially without coordination – decided to increase
the level of protection for bank deposits. At EU level it was subsequently decided to revise
the EU Deposit Guarantee Schemes Directive to take account of these developments
(the revised Directive was adopted in February 2009). The direct objective was to reassure
depositors, also as to prevent spiralling deposit withdrawals by retail clients and to secure
the system against bank-run dynamics.
38

39. ESBG observations: which path does the EU choose?
The concrete ESBG views on the above-mentioned developments will be presented in
detail in the third part of this report. Yet the current initiatives and efforts also have a
broad political dimension and direction, on which ESBG would like to share some
observations, which may capture new trends for future developments.
The crisis is the result of interconnected problems, where substantial inadequacies were EU policy makers need
unveiled in regulation, supervision, as well as in crisis management and crisis resolution. to take a holistic approach
These areas are largely interwoven, and they all carry a considerable weight in the when making corrections.
working of the banking market. Neglecting the important inter-linkages and aiming at
self-contained solutions in isolation of the surrounding environment carries the risk of
proving more harmful than helpful. Most important therefore is the awareness that
individual amendments to regulation, supervision or crisis management and resolution
will inevitably have an impact in each of these areas, whilst their very effectiveness
ultimately depends on their interaction. Therefore, concrete policy measures in one field
should consistently consider the potential impact in other areas. Regulatory or policy repair
should duly address concomitantly the entire policy framework for banking in the EU.
The EU regulatory and supervisory framework is the outcome of an evolutionary EU policy makers’ corrective
approach, which, over time, has carefully balanced and calibrated common interests actions rightly build on
while duly considering national specificities. For the consistency of our EU-level policy existing foundations.
making it is of great importance to not take drastic overhauls that risk creating undesired
disruptions. The damages of any drastic overhaul may easily outweigh its intended
benefits, as the possibilities for ‘collateral’ damage are simply too manifold.
Consequently, it is particularly important that regulatory repair builds on the prudential
philosophy underlying the Basel II Accord/the CRD. It should reinforce the three pillar
structure and the risk-sensitive approach, whilst appropriately addressing shortcomings
unveiled by the crisis. Equally, it is most welcomed that the proposed supervisory repair
relies on the central role of the national competent authorities in day-to-day supervision,
whilst strengthening their coordination. Last but not least, it is essential that any EU
proposal on crisis management and resolution observes the distribution of fiscal
responsibilities among Member States.
Among the strengths of the European banking sector is its considerable diversity and the Valuable diversity in
coexistence of a large variety of financial actors with different business policies and of the EU banking market
different sizes. This diversity also counts among the assets which mitigated the danger of can be protected via the
a collapse of the financial system. It is therefore of paramount importance that the parts of proportionality principle.
the European banking sector which have demonstrated their viability and their necessity
shall not be put at a disadvantage. This means that any re-regulation must be compatible
with Europe’s pluralistic banking sector and must take full account of the essentiality of
Europe’s regional banks and banking networks. Any other approach will erode the basis
for Europe’s economic strength and financial stability, and thereby also undermine the basis
for recovery and future growth. A tried and tested way for regulators and supervisors to
account for such diversity is to apply proportionality as an overarching principle.
Accordingly the concrete application of EU rules and the effective supervision of banks
are proportionate to the size, complexity, business strategy and riskiness of an institution.
39

40. EU policy makers must At the peak of the current crisis, the political and economic pressure for policy makers to
separate short-term priorities intervene in and stabilize the financial sector, but also to address the reasons behind the
from long-term corrections. market malfunctioning was substantial. Therefore, for a time there was the danger that
these two very different challenges would be perceived as one task. While this danger has
abated, now the main risk is the paradox that a premature implementation of some of
the envisaged corrective measures (designed to increase stability for the future) will lead to
greater current instability. For instance imposing drastically higher capital requirements for
banks before the crisis is safely overcome would be counterproductive to any efforts to
stimulate bank lending and to revive the economy. The implementation date for any
revised measures must therefore be carefully calibrated and timed with ‘real’ economic
developments.
The banking industry The banking industry can contribute with precious input to the design of quality financial
needs to be in a position to regulation, given its valuable concrete expertise and first-hand insights. Furthermore, the
contribute to the discussions acceptability and effectiveness of regulatory measures is substantially enhanced if the
on the policy repair. addressees of regulatory measures are involved at an early stage in the regulatory process.
These are the very same considerations that have underpinned the EU institutions’ efforts
towards more open and participatory rule-making and that motivate their commitment
towards better regulation. It is crucial that this established and well-functioning approach
be not abandoned. Urgency considerations in the legislative process should not be
systematically invoked to reduce drastically the possibility of the industry to effectively
contribute to the regulatory outcome. Furthermore, in view of the ongoing reforms of the
EU supervisory architecture, it is of utmost importance to integrate industry experts’
practical insights with regard to both macro- and micro-prudential developments.
2.2. EU actions as part of the global approach to crisis prevention –
widening regulatory outreach
Key messages
n Policy makers rightly extend regulation to those formerly unregulated financial market participants whose
actions have contributed to the crisis or whose activities could endanger financial market stability.
n The recent EU regulation of credit rating agencies is especially overdue, given their fundamental role in
the financial sector and their implication for financial stability.
Background – central efforts to regulate the unregulated
The initiatives by European policy makers are not limited to those financial actors which
already were subject to regulation before the onset of the crisis in 2007. In fact, a
significant feature of the political and regulatory response has been to extend the reach
of regulation to those previously unregulated parties whose actions have in the meanwhile
been identified as contributing to the crisis.
40

41. One of the first actions taken at the EU level was to initiate and adopt a new Regulation on
Credit Rating Agencies (CRAs), whose responsibility related to the pervasive mis-pricing
and misperception of risk had been early established. Concerns were exacerbated not
only by their central position in the financial markets, but also by the role they have been
granted by regulation as regards the determination of banks’ capital requirements.
The EU Regulation20 not only seeks to eliminate conflicts of interest affecting credit
ratings, but also includes provisions which will improve the quality of ratings. In addition,
it ensures the registration and surveillance of CRAs in the EU.
Furthermore, the entire shadow financial system has been under close scrutiny and
important actors, like hedge funds, are now in the process of being subjected to binding
rules and oversight at EU level for the first time. In particular, the potential pro-cyclical
role of hedge funds was found to be a risk to the stability of the financial system, implying
that closer prudential oversight is warranted. Accordingly, the Commission proposal for a
Regulation on Alternative Investment Fund (AIF) Managers (issued on 30 April 2009),
captures all non-UCITS (Undertakings for Collective Investment in Transferable Securities)
funds. It foresees that all managers of non-UCITS funds above a certain size shall be
subject to an authorisation procedure and have to fulfil further requirements (e.g. capital,
organizational, and transparency requirements).
ESBG views: promises of extended regulation to formerly unregulated players
The concrete ESBG views on the above-mentioned developments will be presented in
detail in the third part of this Report. Yet the current initiatives and efforts also have a
broad political dimension and direction, described below.
The current steps being taken to extend regulatory reach are important and reflect the Extending regulatory
lessons which Europe and the world have been forced to learn in the past two years. coverage is a straightforward
They are an integral part of tightening the safety belt of the global financial system, and consistent reaction to
even if this means putting a regulatory leash around those actors which formerly were the lessons learned.
constrained only by market forces. Especially as regulation for the already regulated parts
of the financial industry is becoming stricter, it could not be an acceptable decision to
allow the results of these financial soundness and safety increasing measures to be
endangered by omissions in other relevant areas.
The formal regulation of CRA’s is indeed overdue. The central character – combined with CRAs needed to be regulated
the lack of accountability – of CRAs means that they are too important to operate given their central role in
without rules and to remain without oversight. It has been demonstrated that the financial system.
consistently erroneous ratings – in particular in relation to complex structured products –
present a danger to financial stability. Furthermore, mis-priced risks undermine the correct
assessment of the trade-off between risk and return by individual investors.
20 Regulation 2009/x/EC of the European Parliament and of the Council on credit rating agencies, awaiting
publication in the Official Journal.
41

42. 42

43. Part 2
European Retail Banking
Market Integration:
Core Parameters for
a Reality-based Approach

44. 44

45. SETTING THE SCENE
The long-run debate on the integration of Europe’s retail
banking markets
At the time of writing, overcoming the current financial and economic crisis still is an
immediate priority. Yet, the long term integration of Europe’s markets into one ‘Single
Market’ remains at the heart of all political debates. Indeed it is part of, and even
synonymous for, the wider quest for a European identity, where two central questions
dominate: the first question is which goals Europe ultimately should aim for; the second
question is how they should be achieved. Just as the integration of Europe’s markets
advances, both questions are constantly debated and the proposed answers undergo a
continuous evolution.
As the financial sector is an integral part of any economy, the integration of the European
financial markets is an important part of the work programme of the European and
national authorities. Here too, while the EU is undoubtedly approaching the state of a
Single Market, the integration process does not follow a straight political line with a
predetermined result. Instead, policy makers and stakeholders are engaged in a constant
dialogue about the concrete realisation of the Single Market as well as on the path and
measures to be taken to induce the desired outcome.
Among the important topics in this area is the future and further integration of Europe’s
retail banking sector, which has dominated the political agenda following the completion
of the Financial Services Action Plan (FSAP – 1999-2005). Undoubtedly, for the time
being, the ongoing financial crisis has pushed this debate in the background.
Nevertheless, discussions on market integration certainly will be revived as soon as
circumstances permit, and will also be influenced by the lessons learned from the current
crisis – which are already changing the way in which Europe regards its banking sector.
The current status quo of the debate can be summarized as follows: As compared to the
initial stages of the discussions, there has been great convergence in the positions on what
the integration of the retail banking sector should and could achieve. This convergence
has contributed to the fact that the diversity of Europe’s banking markets is now
integrated into any credible vision for further market integration – even if this diversity
had been condemned initially by some parties as an obstacle to achieving a ‘true’ internal
market. Hand in hand with these developments, there has been an increased
understanding of the retail banking market and a nearly unanimous recognition that
retail banking as a business is local and driven by customer demand.
The most recent manifestations of these trends are the reports by the European
Parliament such as the Pittella Report1 and the Karas Report2 (both adopted in 2008),
which clearly underline the European Parliament’s recognition of the fundamental
characteristics of retail banking and the Parliament’s strong interest that plans for the
future of the European retail banking market firmly build on its existing foundations.
1 European Parliament. 2008. European Parliament resolution on competition: sector inquiry on retail banking
(A6-0185/2008 / P6_TA-PROV(2008)0260). Committee on Economic and Monetary Affairs of 5 June 2008,
Rapporteur: Gianni Pittella.
2 European Parliament. 2008. European Parliament resolution on the Green Paper on retail financial services in
the Single Market (A6-0187/2008 / P6-TA-PORV(2008)026). Committee on Economic and Monetary Affairs of
5 June 2008, Rapporteur: Othmar Karas.
45

46. Due to its richness and its far reaching outlook, the debate on retail banking sector
integration takes place along different dimensions. Among these the most important are
the political dimension concerned with a ‘vision’ of the sector as a whole, and the policy
dimension, where the regulation of the concrete aspects of the common markets takes
place. The political and the policy dimensions are, of course, closely interwoven. Yet for
the purpose of this report it is necessary to separate them in order to best address the
issues under concern. Therefore this part of the report focuses on core parameters for the
wider integration debate, while Part 3 will present ESBG’s views and recommendations
regarding the concrete relevant policy areas.
With a view towards the longstanding political integration debates, the present part of
the report focuses on core parameters of the European retail banking market and their
implications for the scope of further sector integration. ESBG does not set out to develop
a ‘vision’ of an (even more) integrated EU retail banking sector. Rather, the highlighted
parameters are important sector specific features which any realistic and appropriate
vision of a further integrated market should incorporate. They also form the basis for a
judicious and fair appreciation of the past achievements and of the degree of sector
integration already reached.
Chapter 1 lays out and explains the essentially local character of retail banking and its
implications for the provision with retail financial services as well as the complexity of
competition in the market for retail banking products. Chapter 2 highlights the diversity
of retail banks as a heritage of and future for the European retail banking market. It also
describes the benefits of a pluralistic banking sector for Europe’s economy.
46

47. 1. RETAIL BANKING REALITIES
AND THEIR IMPLICATIONS
FOR MARKET INTEGRATION
Retail banking traditionally is a local business. Its core activities are:
1. The intermediation between those who wish to save and those who wish to borrow;
and
2. The facilitation of payment flows.
As such, retail banks provide local agents with access to financing and investment possibilities
and with a local access point to payments systems. The key groups of customers of retail
banks are consumers, local small and medium-sized enterprises (SMEs) and municipalities.
Retail banking is omnipresent and a core part of real economic activity. It is evident that
at the local level, retail banks are the most visible part of the financial infrastructure.
In the payments area, the use of cheques, debit cards and credit cards rivals or exceeds
cash payments, where cash itself usually can only be obtained from retail bank branches
and ATMs. In most economic centres there is a great density of branches and ATMs are
omnipresent. In more remote areas the presence of bank branches and ATMs mirrors the
level of economic activity and prosperity, and is furthermore determined by the structure
of the national banking community.
One of the reasons for re-emphasising that retail banking is a local business lies in the
technical developments observed in recent years. At first glance, these developments
seem to indicate that retail banking is becoming ‘less local’. In fact, at least since the IT
revolution, the times when there was no alternative to physical presence for any business
have clearly passed. Such a gradual and partial disappearance of physical constraints implies
potential for a great widening of the geographical outreach of credit institutions. It is
therefore logical that, in particular at the EU level, greater potential outreach was initially
found to promise a boost in market integration in retail banking, as in many other areas.
However, such a perception is misguided and does not take into account the prevalent
business realities of retail banking as will be explained in this Chapter. Likewise it is wrong
to conclude from the observation of generally declining numbers of bank branches that
local retail banking has lost importance. Such an interpretation would be incorrect since
the dominant reasons for the decline in branch numbers are largely found in structural
changes in the banking sector and not in the loss of importance of branches as primary
access, sales and communication points.
Against the background of these developments and also with view towards current and
future integration debates, the following sections lay out underlying reasons for the
persistence of the local factor in retail banking. Equally, it is evident that the local
orientation of retail banking neither indicates the presence of hidden inefficiencies nor of
barriers in the market. Instead, the essentially local character of retail banking comes from
the very nature of the business itself (as explained in Section 1.1).
47

48. Furthermore, local demand and the necessity of local presence make branch networks
the central distribution channel for comprehensive coverage with retail banking facilities;
‘internet banking’ can therefore not be considered a substitute for physical presence
(Section 1.2). In addition, as a result of the complexity of retail banking as a business,
banks compete based on many factors, essentially with the goal to gain and maintain
customer satisfaction and loyalty (Section 1.3).
1.1. Local demand for retail banking products and services
Key messages
n Demand for retail banking products and services is local.
n Proximity and personal contact between customers and banks is vital – relationship banking is key for
retail banking.
n Market integration takes place on the local level: it is always conditional on domestic demand and the level
of local competition.
Motivation: Why does the local dimension matter for retail banking?
Policies aimed at the further integration of Europe’s retail financial services market must
be based on market realities. For example, plans to advance integration must incorporate
the fact that retail-banking is a business in which the proximity between provider and
customer is a key-factor. Indeed, even in the age of the unprecedented communication
possibilities, retail banking ‘at a distance’ is an exception. For any market integration
strategy to be realistic, it needs to be developed on the basis of the local character of
retail banking.
At first glance the local character of retail banking may indeed not be obvious since the
essence of retail banking activity is generally the same in all markets. Also for ESBG
members, there is a high degree of communality in their core business. One of the key
reasons why retail banking is nevertheless predominantly a local business that takes place
on local markets is the strong local component of the demand for the bulk of retail
banking products and services.
Looking more closely at two main groups of retail banking customers, it becomes clear
that, while the demand by consumers generally incorporates the need for direct contact
with their bank, this is even more so the case for the demand by SMEs. The following
paragraphs apply to consumers and SMEs equally; factors specific to SMEs’ demand are
laid out further below.
ESBG explanation: local components of demand for retail banking products
and services
While there is significant communality across Member States, for consumers and SMEs
demand is nevertheless shaped by national economic conditions, traditions and prevalent
public-private trade-offs (for more details, please refer to Part 2, Section 2.1). This means
that the business of retail banks differs across countries, and that strategies which may
be successful in one national market are not necessarily successful in another.
48

49. Partly because of such differences, the number of ‘homogeneous’ products is rather
limited (of course, this is also due to differences in national regulation/legislation).
Therefore, demand is primarily local in the sense that the qualities and properties of
products and services demanded are driven by local circumstances. In addition, the
importance of proximity is a result of the following:
As significant players – and sometimes market leaders – in the national retail banking Relevant knowledge
sectors, ESBG members have always experienced that the demand for retail banking often is local.
products and services reaches beyond the need for a product and willingness to pay a
certain price. Instead of a simple provider of products and services, most customers want
an accessible financial partner. Here, customers are fully aware that banks’ competence
and knowledge of their circumstances ultimately determine the quality of advice they
receive and hence the suitability of the financial decisions they make. Customers are also
aware that personal contact with bank staff is a prerequisite for advisers to become
knowledgeable about customers’ circumstances to begin with. In addition, the more
important a decision is in the ‘economic career’ of a customer, the more customers seek
a dialogue with bank staff to identify the best offer. Customers therefore know that the
proximity and accessibility of banks are conditions for a satisfactory and successful
business relationship.
By choosing a bank, customers also put their trust in this bank. Especially for new customers, Proximity and trust
confidence depends on their expectation whether and how much a bank will justify go hand in hand.
and deserve this trust. A bank’s reputation and approachability are important factors
reducing the customer’s perceived gamble. Demand may focus on locally present actors
because a bank’s reputation needs to be known on the local level and since proximity
means approachability.
To sum up, customers generally demand ‘relationship banking’, which – being based on Customers demand
personal contact and knowledge – has a strong local component. In light of the current relationship banking.
economic developments, and the overall observed decrease in economic confidence, it is very
probable that the importance of relationship banking will become even more prominent.
However, it would be wrong to presume that local is automatically equivalent to national, Local does not always
or that a local market is always confined or limited by national borders. Indeed, a significant mean national.
proportion of EU citizens live in border areas and may therefore consider “local” banks
on each side of the border. Such “local cross-border” phenomena are particularly likely
within the European Monetary Union and in geographic areas which share a common
language and cultural/historic background.
ESBG explanation: SMEs and the local factor of financing
SMEs are among the most important drivers of the European economy and serve as main
creators of innovation and jobs. Therefore, the supply of high quality and reliable financial
services to SMEs is of crucial importance even beyond the wellbeing of the sector.
ESBG members are stable providers – and often among the market leaders – of SME finance.
This is a natural continuation of a long tradition of partnership and of savings banks’
underlying raison d’être.
49

50. Furthermore, the close ties between SMEs and savings banks or regionally oriented retail
banks reflect the local character of SMEs’ demand for financial services. The strong local
component in SME banking is predominantly a result of the importance of financial
decisions for SMEs, where a functioning, consistent and close relationship with its bank
is crucial for an SME’s wellbeing. There are two main reasons why a strong local presence
plays a key role for a bank’s ability to be the financial partner required by SMEs.
Credit institutions need First, for banks to correctly appreciate an SME’s business risks and to adequately price and
to know their SME clients structure credit and credit lines, they need a sound knowledge of the SME’s business and
to make the best offers. of the sector in which it is active. Furthermore they must have a well-founded
understanding of an SME’s growth potential and features such as the need for cash. It is
also necessary to understand the age structure of employees in order to offer suitable
‘outside’ investment possibilities for retirement provisions. Such knowledge then gives
banks the freedom to react to an SME’s financing needs flexibly and comprehensively.
Relationship banking means Second, demand for retail financial services goes beyond the product or service itself.
solving problems together. Among retail banking customers, this point applies most strongly to SMEs. SMEs do not
merely demand products or services at a good price. They need a bank’s expertise and
knowledge to decide on the best solution – and in many cases they need banks’ expertise
in order to create such a solution in the first place. Ultimately, for SMEs, their banks’
advice, identification of financing needs, and ability to help develop solutions to the
SME’s problems are at least as important for an SME’s success as ‘pure’ price factors
alone. Therefore, in the ideal case, an SME’s success is a joint success of the SME and its
bank, built on a consistent relationship with a long-term perspective.
Local SME banking However, the following misconception should be avoided: while SME banking is a local
is not locally constrained. activity, this does not mean that the relationship between banks and clients is ‘locally
constrained’. Especially for SMEs seeking to expand into new markets or for SMEs which
are active exporters, credit institutions seek to accompany and support their SME clients
wherever their business takes them. Here, the challenge for banks is to support their
clients outside the bank’s traditional local radius. According to ESBG Members’ experiences,
while relationships between banks and SMEs are ‘locally founded’, they nevertheless
reach beyond the local level.
What does local retail banking imply for European integration dynamics?
Local demand determines how The local nature of demand and the importance of ‘relationship banking’ have the
sector integration ‘can work’. following important implications for market integration:
n If ‘cross-border’ banking is defined such that branches and customers will be in
different countries, market integration via ‘cross-border’ provision of retail financial
services is and will remain a rare phenomenon (in some exceptional cases SMEs and
consumers may bank in neighbouring countries, but this is a long established and
locally confined practice).
n Integration via market entry (i.e. the establishment of branches or subsidiaries of a
foreign bank) is only successful if there is demand for the entrant’s products and
services, if the entering bank can sufficiently adapt to the local business/cultural
environment and if the entering bank can fulfil local expectations.
n The local character of retail banking requires great investments for successful market
entry – for mature and competitive markets the possible benefits for the entrant may
not merit such investments.
50

51. 1.2. Distribution of retail banking products: Does retail banking
become ‘less local’?
Key messages
n Branch networks go hand in hand with comprehensive retail banking: technological progress does not change
the local character of retail banking.
n Financial inclusion of Europe’s regions builds on the full coverage of retail financial infrastructure in form of
branch networks.
n Implication for integration: ‘direct banking’ does not drive market integration. It only provides selected
services to selected clients – with uncertain economic consequences.
Motivation: How do distribution channels enter the debate on integration?
Retail banks can make use of different channels to distribute their products and services
to customers. The standard approach to distribution – also practiced by ESBG members
– is via a branch network. Distribution via branch networks reflects the strong local
character of retail banking and implies a dominant focus on the banks’ original markets
and on those markets into which they have subsequently expanded. Typically banks
operating branch networks, and in particular ESBG’s members, target and cover the
entire population in the relevant area. They offer the full range of retail banking services,
fulfil the requirement of direct contact with customers and enable bankers and clients to
cultivate a close business relationship.
Alternatively, retail banks can function as ‘pure internet banks’, or ‘direct banks’,3 as they
distribute their products and services solely via the internet and do not foresee direct
personal contact between bank staff and customers. It is this kind of business model which
in the recent past has attracted the hopes of some parties who took it as an indicator that
physical constraints no longer stand in the way of retail banking market integration.
These two approaches are very different, not only regarding the role of local representation
but also in view of the customer segments targeted and the range in products and
services offered. Another question is whether, even for traditional banking models,
the IT revolution has fundamentally changed the communication between retail banks
and their customers. Such a clarification is also important in order to understand the
potential of technical progress to drive market integration.
ESBG overview: Branches and the IT revolution
Branches traditionally serve as direct sales points and as centres for advice and consultation.
They generally meet customers’ need for explanations and dialogue – for example when
it comes to investment decisions or larger credit applications. Retail banks’ continued
large investments in their branch networks underline the persistent importance of
proximity banking. In short, retail banks would not succeed without giving customers the
opportunity to actively take part in the process of identifying the best possible solution,
to ask questions and to – in general – have a familiar contact person at the bank.
3 An additional alternative is distribution via intermediaries, which, however, is of less relevance in the light of
the present debate.
51

52. Branches are becoming less Though conditional on technological possibilities, the distribution of retail banking products
important for the daily use is essentially driven by customer demand. As especially younger customers increasingly
of retail banking facilities. demand faster and effortless access to services, means of payment and administration of
accounts, banks have reacted by offering alternatives to a physical visit to the branch.
This has taken place notably via online accounts and more recently via ‘mobile phone
banking’. As a consequence, branches are therefore less necessary for simple tasks such as,
for example, the pure administration of a current account or for conducting payments.
Branches remain the central However, this does not imply that online banking facilities are replacing branches.
platform for the relationship Instead, the current trend is to utilise the freed capacities in the branches in order to
between customer and bank. satisfy the growing demand for in-depth information and advice on more sophisticated
banking products. In the branch model, new communication channels complement – but
do not replace – the distribution of products and services via bank branches.4
ESBG views: ‘Direct banking’ – what is the scope for ‘banking at a distance’?
Retail banks can also function as ‘pure internet banks’, or ‘direct banks’, distributing their
products and services solely via the internet without foreseeing direct personal contact
between bank staff and customers.
‘Direct banking’ only The business approach of ‘pure internet banks’ or ‘direct banks’ is far less comprehensive
serves selected customers than the traditional branch based approach. First, ‘direct banks’ do not operate a physical
with selected products branch network and thereby naturally focus on a smaller segment of the population.
and services. Second, they mainly offer savings accounts, which are particularly suitable for distance
marketing, and less frequently credit cards; in some cases standardized consumer loans
are also offered. Among the key characteristics of these products are the low associated
costs and that they are sold without consultation and advice to customers.
Approachability is low and direct contact with customers is not foreseen; for the bank,
problems from the latter may arise in complying with the due diligence requirement to
‘know your customer’.5
‘Direct banking’ outside Regarding the nature of ‘direct banks’, they are usually subsidiaries or branches of universal
the home-market is restricted banks with established branch networks in their home markets; indeed free-standing
to simple products. ‘direct banks’ are a comparatively rare phenomenon. In particular, during recent years it
has become a strategy of some larger European banks to establish ‘direct banks’ with a
focus on ‘high interest rate’ savings accounts outside their traditional markets. Here the
product offer is largely restricted to ‘high return’ savings accounts and, less frequently,
credit-cards. Among the chief advantages of this tactic are an increase in market share
and the possibility to raise funds without incurring large physical investments in the form
of a branch network. The technical possibility of offering ‘direct banking’ directly cross-
border is rarely made use of – which is confirmed by the findings of the recent Commission
report on the impact of the Distance Marketing Directive.6
4 For a good summary of developments, ESBG suggests to refer to the 2008 survey by the Fraunhofer Institute
(Fraunhofer Institute Arbeitswirtschaft und Organisation and Equens.2008. European Trend Survey – Banks and
the Future 2008.).
5 ‘Know your customer’ (KYC) is part of the due diligence which financial institutions and other regulated
companies must perform to identify their clients and ascertain relevant information pertinent to doing financial
business with them. Regarding the opening of bank accounts, in many countries this entails the personal
presentation of a valid ID at the bank – as an alternative, albeit sometimes cumbersome, there are possibilities of
accreditation by recognized third parties, should a personal presentation by the customer not be feasible.
6 Civic Consulting. 2009. Analysis of the Economic Impact of Directive 2002/65/EC concerning the distance
marketing of consumer financial services on the conclusion of cross-border contracts for financial services
between suppliers and consumers within the Internal Market. Final Report to the European Commission,
DG Health and Consumer Affairs.
52

53. ESBG views: Economic consequences of distribution strategies
Given the strong link between retail banking and real economic activity, the distribution of
retail banking products needs to be assessed and considered in view of the wider economy.
In a socio-economic context the distribution strategies of retail banks have important Distribution strategies
implications for the provision of retail products and services across the population. In fact, have socio-economic
the distribution of retail banking products is a key factor determining the very access to consequences: ‘direct
financial services and a driving force for financial inclusion. It is evident that distribution banking’ is not a substitute
via distance marketing can only address a small range of the services and products for branch presence.
demanded by the overall population and targets only a limited segment of the population.
Therefore, ‘direct banking’ cannot be regarded as a substitute for physical presence. As a
result, in order to guarantee full local coverage and full accessibility of financial services,
branch networks remain without alternative. A dense network of branches (be it fixed
branches or, exceptionally, mobile branches) is hence not only the dominant distribution
strategy and vital from a competition point of view. It is also fundamental from a
socio-economic perspective since the proximity to consumers is key to the comprehensive
provision of financial services. Looking at the roots of most savings banks, these
considerations form an important part of the ‘raison d’être’ of ESBG’s members.
The broader economic consequences of distribution strategies cannot be disregarded. Distribution strategies affect
For example, the restricted product range of foreign owned ‘direct banks’ implies that the economy: aggressive
usually the funds deposited on online savings accounts are not converted into lending to ‘direct banking’ can raise
the domestic economy. This may imply that a significant proportion of funds are not wider economic problems.
reinvested in the domestic economy. The resulting de-facto outflow of capital can trigger
a competitive race among remaining banks, which, in order to maintain domestic
lending, need to replace such funds by using more aggressive fund-raising strategies.
While competition as such is a necessary and positive feature in banking as in any other
industry, excessive competition among unequal market players may have grave repercussions
by undermining the profitability and sustainability of sound and all-encompassing
business models – in particular when combined with an overall outflow of funds.
Furthermore, for the bank operating a ‘direct bank’ abroad the question remains how to ‘Direct banking’ – a mixed
use the additional funds from the foreign market. Unless the bank encounters great blessing for the bank itself?
demand for credit from the ‘real economy’ in its home market – or in other markets
where the bank is an active lender – it will make use of high yield investment possibilities,
for example high-yield assets acquired on wholesale financial markets. The risks inherent
in such strategies – notably in terms of increasing pro-cyclicality and liquidity risk –
became painfully obvious in the current crisis.
53

54. New distribution channels do What are the implications of distribution channels for market integration?
not lift the physical constraints
for market integration. The differences in the roles and possibilities of banks working via branches or as ‘direct
banks’ determine the possibilities of retail banking market integration:
n Retail banking remains local. New technologies offer new possibilities for
communication between customers and banks, which complement branch networks
but do not reduce their importance. Given the limitations of their business model, any
hypothesis that ‘direct banks’ could be (or become) an equivalent alternative to
traditional banks overestimates the potential of ‘direct banks’ and underestimates the
importance of direct contact between customers and banks on a local level.
n From an economic and socio-economic point of view, ‘direct banks’ may even be of
limited desirability – especially if their market share in one segment of the market
becomes disproportionate to their overall contribution to the economy. At the very
least, the fate and performance of European ‘direct banks’ in the context of the
current crisis does not suggest that – in its current form – the business model itself is
stable or conducive to financial and economic stability.
n Regarding market integration, it is therefore apparent that the local nature of retail
banking remains a core parameter determining which kind of integrated market will
be ultimately feasible and desirable. This needs to be taken into account in any future
discussions and actions directed at promoting market integration.
1.3. Competition in retail banking
Key messages
n Competition is multidimensional: banks compete based on prices, customer satisfaction, depth of service and
regional coverage – Customer choice is a trade-off between ‘hard’ factors and ‘soft’ factors.
n Competition on Europe’s national retail banking markets is high – as retail banking is local, this translates into
high competition at the EU level.
n Implications for integration: Given that competition levels are high already, forced market integration is not
necessary from a competition point of view. Instead, real market integration is demand driven.
Motivation: Competition and the debate on sector integration
In the European debate and especially in the view of the ongoing discussions on further
sector integration it is vital to clearly understand competition in the retail banking sector.
In particular it is necessary to avoid any overly simplistic approach towards assessing market
competition, not only given its potentially harmful direct implications, but also in order to
prevent the debate on sector integration from losing its perspective on market realities.
Attempts to deduce a need for further – politically precipitated – market integration by
way of simplistic competition assessments need to be met with extreme caution, as they
can easily yield misleading and distorted results. Also, it is important to keep in mind that
already now ‘real’ market competition is very high within most national markets, and
therefore – given the local character of retail banking – also on a European scale. In part
at least, the intense competition among retail banks in the different national markets is
a result of the well-established and functioning level-playing field for competition, which
is a great achievement of the European Union.
54

55. On this basis and in order to yield truly meaningful contributions for the European debate
on market integration, the comprehensiveness of competition assessments needs to be
significantly enhanced. This being said, capturing and assessing retail banking
competition on a European level is indeed a genuine challenge for policy makers and
researchers. For any sector or industry it holds that market characteristics shape the
concrete terms of competition and make it difficult for an observer to capture the sector’s
competitiveness. Yet, as documented, for example, in the Commission’s recent sector
inquiry into retail banking,7 for the retail banking sector this challenge appears
particularly great.
ESBG insights: competition on retail banking markets
Looking back at recent efforts to assess the competitiveness of Europe’s retail banking
markets (namely the European Commission’s sector enquiry of 2007 and the last
European Financial Integration Report 20088) and drawing on ESBG members’ own
experience, ESBG has identified the primary challenges for a comprehensive and wide
overview of competition in the European retail banking markets. They are due to the very
nature of retail banking as a business and should be taken into consideration for future
market assessments.
Competition among retail banks has a strong national component, as banks compete Competition among retail
differently in the different markets. National modalities differ for pricing, interest rate banks has a strong national
setting and structuring of fees. All in all national banking markets are a product of component.
underlying economic conditions, of macro-economic growth and industrial development.
Furthermore, depending on a country’s economic situation, markets have different
degrees of maturity. As a consequence, products and services which are comparable
within markets are not necessarily comparable across markets – and neither are their
prices or other relevant conditions. Consequently, observed price differences across
markets are not reliable indicators for national differences in intensity of competition.9
Undoubtedly, for many products, the most visible competition between retail banks is Price competition is visible but
price competition, where prices are interest rates and fees/charges. Concretely, banks by far not the whole story.
compete via cheaper loans and via higher interest rates on deposits and on the basis of
the management fees of accounts. Prices are the most direct channel for competition in
the sense that consumers can compare banks’ offers according to their prices and given
that price advertisements are a central competition strategy. For these reasons, price
competition is the most tangible feature of competition between banks. The price aspect
also receives the most attention in the political debate on competition at the EU level
– and indeed, if banks and banking products are otherwise identical, price differences
will be the decisive factor for consumer decisions. Only if these conditions hold true is it
valid to assume that intense competition eliminates price differences. However, reality is
more complex.
7 European Commission, DG Competition. 2007. Report on the retail banking sector inquiry. Commission Staff
Working Document, SEC(2007) 106.
8 European Commission. 2009. European Financial Integration Report. Commission Staff Working Document,
SEC(2009) 19 final.
9 For a more exhaustive treatment of these issues, please also refer to the ESBG Response to the European
Commission’s Consultation on the Interim Report II: Current Accounts and Related Services, in context of the
European’s sector inquiry into retail banking (completed in 2007). The ESBG Response can be downloaded from
http://www.esbg.eu/uploadedFiles/Position_papers/2006-02588.pdf.
55

56. Competition in retail From the experience of ESBG members, ‘soft factors’ are at least as important in
banking is multidimensional. determining a customer’s choice of bank, and may even take precedence over prices
when it comes to gaining and maintaining customer satisfaction and loyalty. These ‘soft’
factors cover a wide range of bank characteristics: quality of service, bank staff’s
knowledge of the customer and his/her circumstances, staff’s general competence, range
of offers and flexibility, quality of assessment and adequacy of products, suitability of
recommendations/advice, accessibility of branches and direct contact with staff, proximity
to consumers, innovation in offers and speed of improvements.
To summarize, retail banks compete for customer satisfaction essentially via:
n Prices;
n Products and services – specific features/variation/ flexibility/ security;
n Confidence – trust in the bank’s reliability and soundness, as well as its safety,
experience of smooth processing and competence;
n Proximity and accessibility.
Prices reflect banks’ decisions For banks, a competition strategy is a trade-off between these different factors and the
to compete on ‘soft’ factors. costs involved. Indeed, most ‘soft’ factors are connected with expensive investments by
the bank and may push up overall costs. Consequently banks’ costs differ not only due
to differences in efficiency but also due to differences in the quality of service or in the
maintenance of branch networks (proximity banking). As costs translate into prices,
the observed price differences hint not so much at a lack of competition as at differences
in the depth of the banks’ service. Furthermore, as retail-banking is a local business,
competition in retail banking is also local.
Competition reflects trade- Banks’ competition profiles are influenced by the type of customers they choose to
offs by banks and customers. target. In general, the broader a banks’ customer base and range of offer, the less
extreme are its competition strategies. For example, to compare traditional savings banks
with a strong focus on proximity banking and SME clients with ‘direct banks’ offering only
savings accounts, is like comparing the proverbial apple and orange. Yet, such different
types of banks do compete, and each customer makes his/her preferred trade-off.
Implications of competition for the scope for further market integration
The recipe ‘more integration Competition in the retail banking sector is heterogeneous across markets because banks
for more competition’ needs compete differently according to market practices and national conditions. In addition,
to be viewed with care. competition itself is multidimensional and reflects the different facets of retail banking as
a business. For the use of competition assessments as well as for the scope of further
market integration, this has the following implications:
n Restricting a competition assessment to a simplistic comparison of an overly narrow
set of indicators can affect – or even negate – the usefulness of the investigation and
lead to misleading conclusions. The complexity of competition implies that extreme
care needs to be taken when competition assessments are used to investigate the
need and scope for further market integration.
56

57. n Looking at the current situation, the European retail banking market has already
achieved a high and increasing degree of competitiveness. On this basis, only very
marginal benefits (if any) would arise from aggressive steps towards more market
integration directed predominantly at remedying perceived competitive deficits.
n Retail banking competition is multidimensional. As market integration is demand
driven, integration via market entry or cross border provision ultimately depends on
the ability of the entrant to fulfil domestic demand in an already very competitive and
complex environment, where competitive pricing is only one element of many.
57

58. 58

59. 2. DIVERSITY: HERITAGE AND FUTURE
FOR THE EUROPEAN RETAIL
BANKING MARKET
Europe’s banking sector is distinguished by its great diversity – a consequence of
differences between and within national markets which lead to a richness in banking
practices and market players. At the EU level, Europe’s heritage of diversity in the banking
sector should receive the appreciation it deserves.
Appreciating diversity is synonymous with aiming for the right balance between different
goals and for the adaptability of policies to the different institutions in Europe’s diverse
banking environment. In fact this is a condition for high-quality European policy making.
Furthermore, it is necessary to recall that diversity is a result of a process of adaptation to
diverse and heterogeneous market environments and therefore the natural consequence
of different legal, economic and cultural developments. Unless national (local)
environments converge naturally, banking practices will maintain a distinctly national
(local) character. Indeed, as retail banking is determined by both demand and external
constraints, the role of banks is to fulfil the needs of the economy as adequately and
efficiently as possible. Diverging banking practices therefore are a consequence of
differences in demand and market environments (Section 2.1).
However, not only do banking practices differ throughout the EU, the banking sectors
and market players themselves are also of very diverse. This is a consequence of different
national developments and the adaptation of banks or their founders to national
economic and legal environments. The diversity is first apparent from the substantial
differences in the number and size of banking institutions in the different national
markets. Second, the observed diversity in bank types implies diversity in banks’ objectives
and orientation, which drives the overall performance and efficiency of the European
banking sector (Section 2.2)
Given the variety of national banking models and practices, the conclusion is that
– instead of a ‘European banking model’, there is a ‘European model of a banking sector’
which is best summarized as ‘Pluralism’. Indeed, pluralism is one of Europe’s great assets:
it implies equal competition and freedom of choice and approach to the benefit of the
European economy. In concrete terms, pluralism drives competition in the banking
sector and contributes to financial stability by preventing sector-wide ‘herd behaviour’
(Section 2.3).
59

60. 2.1. Banking practices: EU comparisons – EU diversity
Key messages
n Europe’s banking sector is distinguished by its great diversity as a result of Europe’s diverse heritage.
n Diversity in banking practices is the result of diverse demand, diverse constraints and diverse environments.
Motivation: the changing goal of a Single Market in the political debate
In the past, policy makers’ interpretation of the Single Market and of what it should
achieve appeared narrow and even dogmatic in its reliance on a very abstract economic
definition. Such adherence to the motto ‘identical prices, identical services, identical markets’
is dangerous for two reasons. First, an overly simplistic approach to assessing the Single
Market would not only blind us to its achievements which are directly in front of our eyes,
but may even negate and misinterpret its promises. Second, this approach gives impetus
to misguided policy interventions which, on top of being harmful, also are wasteful in
chasing the wrong goal.
Over time these problems became increasingly recognised, while the importance of
underlying economic conditions as a driving force for retail banking product offers,
fees and prices gained more and more acceptance. Against this background, policy
makers have adopted a more differentiated approach and by now take distance from the
dogmatic interpretation of a Single Market in their efforts to advance the integration of
the European retail banking sector. Furthermore, it can be observed that there is a
growing recognition at the EU level that, while the essence of retail banking is the same
in all markets, a forced generalization of the actual business aspects neither contributes
to understanding the sector, nor does justice to its diversity.
ESBG explanation – reasons for diversity in European retail banking practices
The observed evolution in the political debate – away from a dogmatic approach towards
a practical recognition and appreciation of reality – certainly goes in the right direction.
In order to support this trend, the reasons behind the diversity in European retail banking
practices are further explained.
Banking practices are To be successful retail banks have to meet the needs and preferences of the local
determined by broader economy. These needs and preferences, however, are to a large extent endogenous.
demand patterns. They reflect and derive from a wide range of national specificities ranging from habits
and traditions to economic conditions as well as policy factors. Demand patterns
therefore differ for national markets, and even within countries regional differences in
demand can be reflected in regionally diverse retail banking practices.
60

61. In addition, savings culture as such is an important factor. Comparisons of national savings Banking practices are driven
rates and time trends in savings patterns yield striking differences across counties.10 by savings culture.
Partly these differences reflect underlying macroeconomic conditions; however, to a large
extent they are the result of diverging national savings cultures and economic values.
In retail banking, national savings patterns matter for the following reasons: First, the
overall savings rate is important since domestic savings determine the availability of
domestic funding for banks. In addition, the stability of the savings rate and its cyclicality
influence banks’ planning horizon regarding deposit funding. Secondly, households’
preferences concerning savings deposits versus investments in capital markets determine
the funding possibilities for banks (i.e. funding via deposits or wholesale funding).
Of course, household savings preferences also drive banks’ offers in retail investment
products and savings deposits.
Deeper cultural factors, economic traditions, and labour market characteristics also have Banking practices
great influence on banking practices. This is particularly the case for the demand for are driven by cultural factors,
credit and mortgages. For example, overall borrowing patterns are driven by ‘national’ economic traditions and
attitudes towards debt and the role of the family as a lender, for instance as consumers even the labour market.
may choose to borrow within the family instead of applying for consumer loans at a
bank. In addition, the relative social importance of home-ownership and the depth of
rental markets for housing influence the demand for mortgages: They determine the
volume of the market and influence the overall age and wealth profile of mortgage
borrowers. Labour mobility and permanence in housing decisions may also influence the
frequency of mortgages and consumers’ preferences regarding mortgage conditions.
In the payments area, an important factor is customers’ readiness to use the newest Payments methods are
technologies, which is mainly driven by existing technological literacy and the satisfaction a result of habits, preferences
with existing payments methods. Therefore payments preferences have a strong and technology.
demographic component. Furthermore, national traditions and habits are important
factors in determining the use of cash vs. debit cards vs. credit cards, or the popularity of
revolving credit cards.11 Even among countries where, for applicable types of transactions,
payments by direct debit have largely replaced cash payments and cheques, the modus
of payments can differ according to whether they are executed in debtor driven mandate
flows or creditor driven mandate flows. This not only determines the organization of the
payments operation, but also influences the banks’ obligations regarding storage of data
and potential follow-ups to payments.
Apart from national regulation, general government policy is influential for both supply Banking practices react to
and demand for retail financial services. Public-private trade-offs can determine banks’ general government policy.
business opportunities, for instance in the area of retirement provision. Examples include
retail investment products tailored to support household saving and in line with
government programs promoting private initiative to increase retirement income.
Other prominent examples concern the financing of university education, where, as an
alternative to government provided (tax financed) education facilities, public and private
education draws on tuition fees, which often are financed by banks in the form of private
student loans.
10 As demonstrated by Table 10 in Annex 1 - Statistics, Part 1.
11 Differences in payments modalities are demonstrated in Annex 1 - Statistics, Part 2, Table 1 and Figure 1).
61

62. EU level legislation focuses While many aspects of the legislation applicable to credit institutions are defined at the
on selected areas. EU level (see Part 3 of this report), for some aspects, legislation originates in the national
environment. National legislation plays a lesser role for wholesale banking than for retail
banking, where issues such as taxation and social policies of Member States are of great
relevance. This influences retail banking practice via the supply of retail banking services
and products
To sum up, the list of factors determining national demand patterns is long, and the
examples given here are in no way exhaustive. Yet they clearly illustrate the wide range
of national factors which influence product offers, prices and fee structures.
Implications for market integration
Diversity in practices As a result of the national character of retail banking, hardly any two European retail
determines the viability banking markets look the same. Directly comparing prices and offers across European
of the “simple” Single counties can yield to misleading conclusions, all the more so as the different factors are
Market idea. closely interlinked. Diversity in national practices has also implications for the integration
debate itself:
n Any assessment or comparison across national borders needs to take into account
the national context and be based on the retail banks’ business strategy as a whole.
This is an important point, which, however, is missed by any narrow definition of a
‘Single Market’.
n For the nature of integration of the European retail financial market, the national
differences between the different banking sectors also have important implications. In
particular, in addition to the obvious ‘natural’ hurdles such as different languages,
national differences in demand and environment can present a challenge for market
entry. This is not because they constitute a barrier, but simply because the entering
bank has to adapt to different national conditions and position itself in the face of
different demand patterns.
n For expanding banks, substantial sunk costs will thus be combined with initial or even
permanent difficulties in achieving synergies between their operations in the different
markets. Hence, especially for mature markets, entry may be less attractive or even
outright unattractive. Similar hurdles exist for cross-border banking, which in addition
is faced with the challenge to overcome customers’ preference for locally provided
products and services.
n Against this background, policy makers need to take a patient and circumspect
approach to integration.
62

63. 2.2. Europe – rich in market players
Key messages
n Europe’s retail banking sector incorporates a great variety of national players and business models.
n Differences in national banking sectors result from the adaptation to different economic environments.
Background: diversity in the European retail banking sector
Just like the European markets for retail banking products and services, the European
retail banking landscape as such is distinguished by its diversity. Given the relevance of
this diversity in any comprehensive discussion on market integration, it is important to
illustrate its effect on market structures and its importance for a thorough understanding
of the current situation on the European retail financial services market.
The main provider of retail financial services in the EU are banks, and hence credit
institutions according to EU law12 which therefore comply with all applicable EU banking
regulation. This being said, however, there is no ultimate ‘European banking model’ as
banks vary strongly according to their orientation, size, organizational structure and
ownership. Rather, instead of a ‘European banking model’, there is a ‘European model
of a banking sector’ which is best described as a pluralistic market culture.
Banks providing retail financial products and services are either ‘pure’ retail banks or
universal banks, which alongside their retail banking business also operate as investment
banks. In recent decades the trend has been that most ‘pure’ retail banks either
participate in the ownership of or have a partnership with an investment bank or have
some other (indirect) access to investment banking facilities.
ESBG description: diversity in business models and its effect on market structures
In examining the different options for banking, the variety of market players is impressive
and reflects the richness of European banking traditions.
In the retail banking area the three main models are commercial banks, cooperative banks In the retail banking area
and savings banks. The different main categories, however, are not mutually exclusive. three general bank types
For example, savings banks can have various owners or supporting entities, including prevail.
foundations and municipalities, but they can also be organized as cooperative structures.
On the level of the entire banking sector, the three main models (commercial banks,
savings banks and cooperative banks) represent three different approaches to banking.
12 EC Capital Requirements Directive 2006/48/EC, Article 4. “Credit institution means an undertaking whose
business is to receive deposits or other repayable funds from the public and to grant credit for its own account”.
63

64. National market structures Already when looking at the sheer number of credit institutions throughout the EU,
differ according to the importance of the characteristics of the national banking sector becomes obvious.13
banking traditions. In general, national banking sectors with a strong presence of cooperative banks and
savings banks are distinguished by a higher number of individual banks, always
conditional, of course, on the overall market size. Clearly this goes back to the traditional
structure of such bank types, their strong regional orientation, and their less developed
tendency to pursue growth via mergers and acquisitions.
Sector evolution Even within categories of banks different developments take place, depending on
takes different paths national trends and banks’ own preferences and orientation. For instance from the
in different market. structure of ESBG members in different Member States, different paths of evolution in
the organization of savings banks are evident.14 Indeed, ESBG’s membership includes a
range of possible configurations, reaching from savings banks forming one common
banking group, to savings banks organized in decentralized networks, to savings banks
operating completely independently.
Market concentration Furthermore, differences in the composition of national banking sectors also are reflected
is determined by in the degree of market concentration in terms of banks’ share in asset holdings.15
banking traditions. In particular, in countries with a large number of banks and a strong presence of savings
and cooperative banks, the market share (measured in assets) of the ‘top five’ credit
institutions is comparatively low. Divergences in market concentration also hint at
potential differences in the way competition works in the different retail banking sectors.
In addition, these divergences underline that national banking culture and banking sector
composition determine the systemic importance of the largest players in a market.
Performance of different Regarding the comparability of banks, the variety in banking sectors and business models
bank types is not always has the additional effect of making comparisons between banks’ efficiency and
directly comparable. profitability extremely difficult. The most obvious difficulty lies in the comparison of ‘pure’
retail banks and universal banks even within markets, given the differences in business
focus and hence in revenue and associated costs. Banks’ business models also determine
their direct and indirect objectives and planning horizon. While profitability is a key element
for all banks, it is not necessarily the only objective for all credit institutions. Here, ESBG
members serve as examples of banks taking a wider approach in the form of ‘stakeholder-
return oriented’ banking.
Similarly, banks face trade-offs between short-run profits and long-run returns as well as
between growth and sustainability. Banks’ choices on these trade-offs, of course, feed
into their measured profitability and efficiency. Therefore, any differentiated approach to
measuring bank performance needs to ask what the different types of banks ultimately
seek to achieve.
These caveats to cross-market sector comparisons are similar to, and connected with the
observations previously made on competition between banks (See also section 1.3).
They highlight the importance of understanding the banks and the business under
comparison, as well as the composition of and orientations within the national banking
sectors. Another crucial issue for any cross-European assessment of prices and bank
performance is, of course, that markets differ in maturity and hence in the very scope for
bank profitability.
13 See Annex 1 - Statistics, Part 1 Table 2.
14 See Annex 1 - Statistics, Part 1 Table 1.
15 See Annex 1 - Statistics, Part 1, Table 11.
64

65. Implications for the discussions on market integration
The diversity reflected within Europe’s retail banking markets underlines that there is not Europe should unite
one superior market structure, but that many kinds of market structures are viable, its diverse markets in
feasible and thriving. This has implications for a reality-based debate on market integration: a harmonic entity.
n There is no recipe for the composition and structure of the European integrated retail
banking sector apart from that it should combine the advantages of its different
sectors to form a harmonic entity.
n It is important to refrain from any hastened value judgments regarding the nature or
performance of the different market players, as many seemingly straightforward
comparisons can in fact be misleading. The over-reliance on a narrow set of indicators
to draw conclusions on the merits of different banks or business models can unjustly
neglect important factors and lead to false impressions among policy makers on the
role of banks in different markets.
2.3. Pluralism in the EU retail banking market
Key messages
n Pluralism is an asset for the European economy – it benefits the real economy, drives competition and increases
financial stability.
n Pluralism ensures wide presentation of stakeholder interest.
n Pluralism ensures that the European banking sector is more than the ‘sum of its parts’.
Motivation: Pluralism needs to be taken into account when regulating Europe’s
markets.
The diversity in market players is an important factor for regulators and policy makers, since,
for Europe to make the best of its strengths, regulation and policies need to be compatible
with the different business approaches. However, gaining a comprehensive overview over
the richness of the European retail banking sector certainly is a demanding task.
In Europe’s pluralistic environment, EU policy makers’ recognition of the necessity of Proportionality is key
proportionality in market regulation is of great importance. The principle of proportionality is for regulating the pluralistic
an essential guideline to ensure that regulatory requirements are not to the detriment of banking sector.
(especially smaller) market players or place a disproportionate burden on market players
whose activities do not entail the same risk as those who could be systemically important
in a certain area. Therefore, proportionality plays a crucial part in ensuring fairness and
compatibility of regulation with market realities in a pluralistic and diverse sector.
ESBG explanation: Principles of pluralism of Europe’s retail banking sector
Given the central role of pluralism in Europe’s retail banking sector and the opportunities,
as well as challenges it presents to policy makers and regulators, it is important to explain
certain principles of pluralism, and to address and eliminate potential misperceptions.
65

66. Within the pluralistic It has been a great achievement of EU law-makers to ensure that all market participants
banking sector, are competing on a level playing field according to the principle ‘same business,
market players compete same risk, same rules’. This means that all regulation applies equally to all market players
on a ‘level playing field’. engaging in the same activities. Consequently, from an EU regulation point of view,
savings banks compete on equal terms with cooperative banks and commercial banks,
large banks compete on equal terms with small banks (in a given market) and foreign
banks compete on equal terms with domestic banks.
Pluralism is part of Europe’s retail banking markets are shaped by history and economic development over
market evolution. centuries. Therefore the respective business models have grown with and adapted to
the economies of the different Member States: they are endogenous and fully integrated
in their economic system. It is therefore impossible to define a ‘starting position’ for a
European retail banking market, but it would be equally wrong to consider the current
situation as static or to even fear stagnation.
All ownership models entail All ownership models entail compromises and trade-offs. For example, banks organized
compromises and trade-offs. as joint-stock companies have the advantage of relatively easy access to external capital
via the issuance of shares, which enables them to pursue more expansionary strategies.
On the downside, shareholder pressure for fast and high returns leads to a strong focus
on short-term goals. Additional disadvantages are the strong exposure to developments
on capital markets and a vulnerability to share price fluctuations, the potential severity of
which was underappreciated until recently. Non-listed banks, on the other hand, face capital
constraints in that they largely have to rely on retained earnings. On the upside, in situations
of stress they are relatively unaffected by stock market pressure or share price fluctuations.
Benefits of pluralism for the real economy, competition and stability
The benefits of pluralism need to be fully appreciated in order to realize the strengths of
the European banking sector. Indeed pluralism is an asset in many dimensions.
Pluralism reinforces From a socio-economic point of view, pluralism implies wide stakeholder representation
the link between banks and reinforces the link between banks and the real economy. For example, cooperative
and the real economy. ownership or ownership/sponsorship by municipalities or foundations ensures that a bank’s
business activities are compatible with stakeholders’ economic interests. For ‘stakeholder-
return oriented’ banks return implies profits and quality of service, depth of regional
presence and regional development.
Pluralism reinforces Regarding competition, pluralism implies a large and stable number of competitors,
competition. whose diversity drives innovation and intensifies competition while simultaneously
ensuring complementarities in offers and strategies among banks. One could even go so
far as to conclude that pluralism guarantees competition and adds an additional
dimension along which banks compete.16 Pluralism gives customers the option to choose
not only between competing banking products and services, but also among competing
business models with different approaches to banking.
16 In this context ESBG nevertheless feels the need to warn against the frequent confusion between competition
on the market for retail banking products and competition on the market for retail banks.
Such a misconception could wrongly suggest that for competition between banks it is necessary that banks
should being for sale at any point in time to the highest bidder.
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67. Around the time of the completion date of this work, the financial and economic crisis Pluralism contributes to
has reached its second anniversary. The lessons we could draw so far are manifold, and financial sector stability.
undoubtedly many more lessons will follow. However, one of the most important lessons
is that the pluralistic nature of the European banking market has most likely protected it
from far greater instability and damage. Indeed, events up to date confirm that pluralism
has contributed to financial stability during the crisis, as the diversity of market players with
different business orientations balances out the effects of problems at individual banks.
67

68. 68

69. Part 3
EU Retail Banking Policy:
ESBG Contributions
and Recommendations

70. 70

71. SETTING THE SCENE
The EU Approach to Financial Sector Policy and ESBG’s Contributions
on the Basis of the ‘Market Model’
The integration of Europe’s retail banking sector is one of the important topics on policy
makers’ agenda. Yet the ‘vision’ of what the integrated market should look like is subject
to changes in policy makers’ perception of the sector and in their views on what would
be desirable developments. The question of how to achieve integration has undergone a
similar evolution. Starting from a conviction by many policy makers that full integration
needs to be built on full harmonization in market regulation, recent years have shown an
increasing preference for targeted or minimum harmonization and mutual recognition
across countries. Hand in hand with these developments, there has been an increased
understanding of the retail banking market and a nearly unanimous recognition that
retail banking as a business is local and driven by customer demand.
The central effort to bring about an integration of the EU financial services sectors is
the Financial Services Action Plan (FSAP – 1999-2004). The FSAP is a substantial set of
legislative measures covering all aspects of financial services with the result of greater
integration in particular of the wholesale financial sector. In the post-FSAP period,
numerous initiatives covered by the FSAP were brought to a conclusion. During that time,
the retail banking area was identified as a priority for future efforts towards market
integration. In addition, in the context of the current financial markets crisis, regulatory
and policy efforts are already being taken (or envisaged for the future) in order to address
the revealed shortcomings of the existing framework.
ESBG takes the present report as an opportunity to put forward its views and
recommendations on the Commission’s current individual initiatives concerning the
banking area, with a particular focus on retail banking relevant issues.
While, naturally, these contributions are made from a retail banking angle, it is also
necessary to view the issues at hand in the context of the working of the economy
overall. One of the generally accepted ways to look at the link between financial
authorities, the financial sector and the wider economic system is the ‘market model’.
The market model provides a structure to understand the process by which monetary
policy and standard setting for risk management feed through the financial system in
order to generate price stability and public confidence. For this purpose, the market
model distinguishes between ‘markets’ and their respective ‘support systems’.
From a retail banking perspective, the most important aspects of the market model are:
n financial sector supervision and risk management standard setting;
n wholesale financial markets and capital markets on the one side and high value,
foreign exchange & securities settlement systems (as far as they have implications for
retail banking activities) on the other;
n financial services markets;
n goods and services markets on the one side and on the other side retail and
commercial clearing systems.
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72. The structure of this section and the way in which ESBG’s contributions are ordered
reflects how the issues at hand concern the different levels of this model:
Chapter 1 outlines ESBG’s views on banking supervision. This is followed by recommendations
on financial reporting, with contributions on fair value accounting (Chapter 2) and IFRS
and SMEs (Chapter 3).
ESBG then gives its views on retail banking relevant topics in the wholesale financial
and capital markets area, covering wholesale payments and settlements infrastructure
(Chapter 4), securities (Chapter 5), and asset management and investment funds
(Chapter 6).
Turning to the core activities of retail banks, ESBG gives its comments and contributions
as regards consumer policy (Chapter 7), the retail payments area (Chapter 8) and the fight
against money laundering and terrorist financing (Chapter 9).
Regarding the real economy and important issues concerning ESBG’s customers, ESBG
presents its views on SME financing (Chapter 10), as well as financial inclusion (Chapter 11)
and financial education (Chapter 12).
72

73. 1. BANKING SUPERVISION
Setting the scene
Banking supervision broadly refers to the rules and processes that aim to ensure the
individual safety and soundness of financial institutions and the broader financial stability
of the markets. Within the framework of banking supervision, all banks are subject to
prudential rules and to controls and interventions from supervisory authorities.
In the EU, prudential regulation has been largely harmonised at the European level through
extensive and detailed directives, which to a large extent are designed to implement
internationally agreed standards. Prudential supervision, on the other hand, is conducted
primarily by the national competent authorities, with some cooperation and coordination
agreements in place to address cross-border situations.
During recent years, a series of reforms have been adopted which affected various
aspects of the EU prudential framework. These have concerned:
n The substance of the prudential rules – e.g. the introduction of the three pillars
approach of the Basel II framework in the Capital Requirements Directive (CRD);
n The institutional framework for regulation – e.g. the establishment of the four-level
Lamfalussy regulatory framework;
n The organisation of supervision in the EU – e.g. the extension of the powers of the
‘consolidating supervisor’ in the CRD; and
n The cooperation arrangements between national supervisors – e.g. the adoption of
Memoranda of Understanding and the setting-up of various cooperation platforms for
national authorities.
The financial crisis has provided a new impetus for discussions on an appropriate
supervisory architecture in the EU and led to concrete proposals for amending the
regulatory framework in view of addressing various shortcomings revealed.
In this chapter two equally important dimensions of banking supervision in the EU are
explored: the institutional arrangements for supervision and the regulatory framework.
The focus is on the main issues at stake, especially as concerns the ongoing reforms.
The last part of this chapter will address the specific question of the review of the Deposit
Guarantee Schemes Directive.
73

74. 1.1. The EU institutional arrangements for supervision
Key messages
n Any reform of the supervisory architecture should seek to build on the strengths of the current framework,
especially the important role of national supervisory authorities.
n Any institutional reform has to address both micro and macro aspects of prudential supervision.
n The new focus on the risks inherent to macro developments in the economy and in the financial markets is
welcome, given the role of interconnections in the build up of the crisis. Here, the main challenge will be to
ensure that emerging systemic risks are detected in a timely manner and that effective and efficient action is taken.
n ESBG generally supports the establishment of a European System of Financial Supervisors, which shall be a
decentralized network of national supervisors with coordinating roles for the three new ‘Authorities’.
Background on EU banking supervision: the European debate
The question of the appropriate supervisory framework in the EU has been discussed by
EU regulators, politicians and policy makers for many years. Traditionally, there have been
two motivating factors for EU-level involvement in banking supervision:
n First, there is the objective of creating an effective EU internal market (i.e. a common
banking market) where the freedom of cross-border establishment of banks and the
provision of cross-border services are guaranteed and can be effectively made use of.
Here, especially the large, internationally-active banks have argued that a fragmented
supervisory architecture is not compatible with a situation where cross-border entities
increasingly manage their activities centrally (e.g. cash management, development of
internal models).
n Second, in order to safeguard financial stability in an integrated EU banking market,
it is necessary to take into account the rising interdependence between financial
institutions and the implicitly higher contagion channels and systemic risks. From this
perspective, the EU was seen as having a role with regard to macro-prudential aspects.
This was also the case in light of the broad function attributed to the European Central
Bank (ECB) with regard to the maintenance of financial stability,
Over time, policy makers did not attribute the same weight to these two different
perspectives for the involvement of the EU in supervisory matters. For years, the ‘internal
market dimension’ dominated the discussions and constituted the focus of policy reforms
concerning the EU supervisory architecture. This was driven by the political goal to
achieve an EU Single Market for financial services, which led for instance to increasing the
powers of the consolidating supervisor.1 This focus was to a large extent influenced by
the ambition of EU policy-markers to facilitate the creation of ‘European champions’
– i.e. large cross-border financial institutions, which would be in a position to globally
compete with their international counterparts. However, both the macro-prudential
aspect of EU banking supervision and the discussions of crisis management and burden
sharing were only marginally addressed by European policy-makers.
1 See Art. 129(2) of the Capital Requirements Directive (CRD) (Directive 2006/48/EC of the European Parliament
and of the Council Directive of 14 June 2006 relating to the taking up and pursuit of the business of credit
institutions (recast), OJ L 177, 30.06.2006).
74

75. The outbreak and evolution of the financial crisis led to a realignment of priorities
regarding the EU supervisory architecture. Now, the stability of the EU financial system has
become the priority, while efficiency concerns – especially related to large, internationally
active cross-border banks – are less in the spotlight.
Status quo in banking supervision
The status quo of banking supervision in the EU can be summarised as follows:
The exercise of banking supervision in the EU is the responsibility of the Member States’
competent authorities. However, since the Second Banking Directive2 and the application
of the European passport to banks, the principles of home country control, mutual
recognition and consolidated supervision apply. According to these rules, the competent
authority of the Member States that authorised the establishment of a credit institution
(the home country supervisor) is broadly responsible for the supervision on a consolidated
basis of the activities of the respective institution even when performed in a different
country (host country) via the establishment of branches or the cross-border provision of
services. Yet, host countries retain a series of responsibilities with regard to specific
subjects (e.g. liquidity supervision).
For banks that decide to operate in other Member States with subsidiaries, the European
passport does not apply, as subsidiaries acquire a legal personality in the Member State
in which they operate; as such, subsidiaries fall primarily under the responsibility of the
competent authority of that Member State. Nevertheless, a number of provisions have
been adopted in recent years to facilitate the prudential oversight of cross-border banking
groups, including foreign subsidiaries. For instance, the Capital Requirements Directive
(CRD) introduced the possibility for the consolidated supervisor to validate internal
models for risk measurement under Pillar 1 at the group level,3 as well as the possibility
for Member States to decide on a bilateral basis on delegating the supervision of
subsidiaries to the competent authorities responsible for the parent undertaking.4 A new
step was made with the review of the CRD in 2009, which rendered mandatory the
establishment of colleges of supervisors for all cross-border financial groups.5 The CRD
also stipulates that supervisory colleges have to strive for the adoption of joint decisions
on issues of common interest (e.g. Pillar 2 supervisory review, imposition of capital add-ons).
The establishment of the Committee of European Banking Supervisors (CEBS) was also
widely regarded as an important step in the direction of a more European approach
to the supervision of EU banks because of the tasks assigned to it in relation to the
convergence of supervisory practices and the creation of a common supervisory culture.
At this stage it is vital to remember that the strong national focus on supervision is
intrinsically linked to the question of the fiscal responsibility in case of a bank failure.
The lender of last resort, capital injections, state guarantees for ailing institutions etc.
all rely on national financial resources and justify Member States’ claim in preserving their
supervisory powers over the institutions operating in their markets.
2 Second Council Directive 89/646/EEC of 15 December 1989 on the coordination of laws, regulations and
administrative provisions relating to the taking up and pursuit of the business of credit institutions and
amending Directive 77/780/EEC, OJ L 386, 30.12.1989.
3 Art. 129(2) CRD (Directive 2006/48/EC of the European Parliament and of the Council Directive of 14 June
2006 relating to the taking up and pursuit of the business of credit institutions (recast), OJ L 177, 30.06.2006).
4 Art. 131 CRD.
5 European Parliament legislative resolution of 6 May 2009 on the proposal for a directive of the European
Parliament and of the Council amending Directives 2006/48/EC and 2006/49/EC as regards banks affiliated to
central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis
management P6_TA-PROV(2009)0367, 8.05.2009.
75

76. The crisis and immediate policy reactions
As the financial crisis unfolded, EU policy makers were concerned that weaknesses in the
EU supervisory framework were partially responsible. European Commission President
Barroso therefore decided in November 2008 to establish a High Level Expert Group
under the chairmanship of Jacques de Larosière. The Group was entrusted with the task
of developing concrete proposals to strengthen European supervisory arrangements
covering all financial sectors. In February 2009, the report of the High Level Group (called
the de Larosière Report6) was issued. The Report consists of an analysis of the crisis,
proposals for regulatory reforms and policy recommendations on the structuring of the future
supervisory architecture, separately addressing macro-prudential and micro-prudential
supervision in the EU.
n Regarding macro-prudential supervision, the Group believes that there is urgent need
to upgrade the current framework and entrust the European Central Bank/European
System of Central Banks (ECB/ESCB) with an explicit formal mandate to assess high-
level macro-financial risks to the system. The ECB/ESCB would then issue warnings
where necessary. For this purpose, the report proposes to set up a new body,
the European Systemic Risk Board (ESRB) under the auspices of the ECB and replacing
the current Banking Supervision Committee (BSC).
n Regarding micro-prudential supervision, the de Larosière report recommends the
gradual creation, in two stages, of a European System of Financial Supervision,
that would build on the current institutional set-up. As part of this proposal, it is
suggested to gradually transform the Level 3 Committees into ‘Authorities’ with
key-competences, such as legally binding mediation between national supervisors or
the adoption of binding supervisory standards.
The Commission broadly endorsed the de Larosière approach in a Communication of
4 March 2009.7 Furthermore, the Commission published concrete proposals on a future
EU financial supervisory architecture on 27 May 2009 (the Commission’s May
Communication8). In that document, the Commission generally took up the proposals
made by the de Larosière Group on macro and micro prudential supervision.
However, the Commission proposed accelerating the reform and merging the two phases
suggested in the de Larosière report in view of having the new architecture up and
running by the end of 2010.
The general direction of the Commission’s Communication was endorsed by the ECOFIN
Council on 9 June 2009 and by the European Council on 19 June 2009.9 Concrete legislative
proposals will follow in autumn 2009.
6 de Larosière, J., L. Balcerowicz, O. Issing, R. Masera, C. Mc Carthy, L. Nyberg, J. Pérez and O. Ruding. 2009.
Report by the High Level Group on Financial Supervision in the EU, 25 February 2009 [de Larosière report].
7 European Commission. 2009. Communication for the Spring European Council. Driving European recovery,
COM(2009) 114 final, 4 March 2009.
8 European Commission. 2009. Communication on European Financial Supervision, COM(2009) 252 final, 27 May.
9 European Union’s Council of Ministers for Economy and Finance (ECOFIN). 2009. Meeting of the Council of
Economic and Financial Affairs, 9 June 2009 and Council of the European Union. 2009. Presidency Conclusions
meeting June 18th /19th.
76

77. ESBG views on the EU financial supervision, in light of recent developments
General remarks
The financial crisis and its consequences put the EU supervisory architecture in the Policy makers need to take
spotlight. At the same time, the reform of the EU supervisory framework should be a holistic approach beyond
considered against the background of the multiplicity of factors contributing to the crisis, supervision.
most of which are unrelated to the EU supervisory structure. Therefore, a holistic
approach is needed and the focus on reforming the EU financial supervision architecture
should not divert attention from the need to address other substantial aspects through
adequate policy measures.
It is crucial that any reform to the EU supervisory framework contributes to strengthening
the resilience of the EU financial system as a whole. It should therefore address the
supervisory concerns characterising an integrated financial market, among which interactions
and linked vulnerabilities (macro-prudential aspects), as well as the coordination of micro-
prudential decision-making.
Yet, also the effect on competition arising from any such reform to the EU supervisory A two-tier supervisory
framework needs to be given due consideration. Most importantly, reforms should in no system could create grave
way set the groundwork for a two-tier system, where systemically relevant banks are distortions to competition.
supervised at the EU level and national or local banks remain under the control of
domestic supervisors. Any such division would result in supervisory asymmetries
inappropriate in the EU context and would create distortions of competition in the very
markets where credit institutions operate.
Remarks on the proposals in the Commission Communication of 27 May 2009
There is a need to repair the proven shortcomings in European supervisory arrangements. ESBG generally supports
Particularly, ESBG supports the idea of bringing together macro- and micro-prudential the Commission’s approach.
approaches, as this would compel the parallel consideration of both the financial safety
of individual institutions and of the system as a whole. At the same time, the reform
of the supervisory architecture should capitalise on the merits of those features of
the current framework that worked well. Thus, the new architecture should explicitly
acknowledge the comparative advantage of national supervisors in day-to-day supervision
stemming from their proximity and their better knowledge of markets and intermediaries.
As such, whilst supporting the general principles underlying the Commission’s proposals,
ESBG would like to emphasise that the concrete details relating to these principles are of
utmost importance. These details to a large extent still need to be determined and may
impinge substantially on the concrete outcome.
The current momentum and the acute awareness of policy-makers of the risks involved A realistic timeframe
by inadequate supervisory structures should provide the impetus for changes. is necessary.
However, ESBG believes that it is also essential to take the time to thoroughly prepare the
future structures and avoid rushed measures. In this sense, the ambition to have the new
architecture in place by 2010 may be unrealistic. Rather, a more flexible time schedule
would be more promising.
77

78. Proportionality should guide Given ESBG’s consistent support for the creation of a common supervisory culture in the
the application of EU, the idea that this be underpinned by a European rulebook consisting of a harmonised
the common rulebook. core set of standards is in principle welcomed. However, it is important that the rulebook
does not amount to a rigid framework or to overregulation. The rulebook should be
devised in accordance with better regulation principles and applied under the overarching
proportionality principle.
It is essential to establish The integrated complex supervisory framework proposed by the Commission involves
clear lines of responsibility a multiplicity of bodies and fora and a range of decision-making, coordination and
between the various bodies. cooperation mechanisms. These can be effective only if competences are clearly
circumscribed and if clear lines of responsibility are drawn in advance to ensure that
overlaps or gaps in the European supervisory framework are avoided and that the bodies
involved are accountable for their actions.
An effective The establishment of a body explicitly entrusted with monitoring macro-prudential
macro-prudential body developments and issuing warnings and recommendations is considered of utmost
would be valuable. importance. It is equally important to ensure the effective follow-up on these warnings
and recommendations. Therefore the envisaged European Systemic Risk Board (ESRB) is
much welcomed. However, the proposals of the Commission so far are only indicative
and substantial details are still pending – especially regarding the transposition of the
results of the macro analysis into concrete prudential measures.
These details should especially clarify the effects of the risk warnings and recommendations
by identifying potential addressees and the roles and responsibilities of ECOFIN and of the
micro-prudential authorities. Also, in view of guaranteeing the follow-up it is crucial to
determine the precise workings of the ‘act or explain’ mechanism. Appropriate arrangements
should warrant that the non-binding competences of the ESRB are not transformed through
factual pressures into de facto binding powers. Furthermore, the public disclosure of
warnings and recommendations is not necessarily the best way for increasing effectiveness.
The powers of the micro- ESBG supports in principle the creation of the European System of Financial Supervisors
prudential authorities need as an operational network relying on the mutually reinforcing responsibilities of the
to be cautiously devised. upgraded Level 3 Committees10 and the competences of national supervisory authorities
in day-to-day supervision. In principle the functions envisaged for the new European
supervisory authorities (ESAs) are valid, but the Commission’s Communication is still
too vague to allow for an accurate assessment of the underpinning mechanisms and
concrete powers.
Many details still need to be determined and several aspects should be taken into account
for further specification. The new authorities’ competence to adopt binding standards
and the areas subject to further binding rules should be clearly circumscribed in EU
sectoral legislation. Also, the mechanism for endowing technical standards with binding
legal force should be transparent and provide sufficient guarantees to ensure accountability.
Furthermore, the power to settle disagreements between national supervisors through
binding decisions should be seen as a last-resort solution to be employed only if
mediation and conciliation have failed. Equally, ESAs’ enforcement competences and
their powers in emergency situations should be precisely defined to avoid any abuse.
10 The three Level 3 Committees in the Lamfalussy framework are: the Committee of European Banking
Supervisors (CEBS), the Committee of European Securities Regulators (CESR) and the Committee of European
Insurance and Occupational Pensions Supervisors (CEIOPS).
78

79. The ESAs should not be endowed with direct and binding powers against individual
banks until several preliminary issues are clearly specified. These concern especially the
determination of the applicable law on which ESAs’ concrete decisions will be based, as
well as appropriate legal remedies and appeal procedures. Furthermore, credit institutions
should have the possibility to be heard in cases leading to concrete decisions by the ESAs
which affect them. They should also be able to ask ESAs to mediate or settle disputes
among supervisory authorities and to request that ESAs investigate cases of manifest
breach of EU law.
The industry should have a say in the supervisory process, as it is important that experts The industry should
bring their practical insights with regard to both macro- and micro-prudential contribute its views
developments. ESBG suggests that the forthcoming legislation should explicitly foresee to the micro- and macro-
the involvement of the industry in the new bodies. This could be realised via the prudential bodies.
participation of industry representatives in the advisory technical committee envisaged to
support the work of the ESRB, while existing industry consultative panels could be
integrated and formalised inside the ESAs.
The political commitment that the powers of the new authorities do not impinge on Crisis management solutions
Member States’ fiscal responsibilities is largely supported by the ESBG. This should be are still pending.
more clearly articulated in the forthcoming legislative proposals. At the same time,
there is an inextricable link between supervision and crisis management. Efforts to establish
a coherent and workable regulatory framework for crisis management in the EU should
be pursued as a matter of priority.
Substantial and reliable information (and data) will be essential for the effectiveness of Costs for additional
the new structures. Their main information source should be the national central banks information should be kept
and supervisory authorities which by now have a large database on individual institutions to a minimum.
and national financial systems, to which the banking industry is regularly contributing.
It is crucial that banks are not submitted to double reporting and that the additional cost
burden for information is kept as low as possible. Therefore, the ESRC should not be able to
request information directly from market participants and the envisaged central European
database should not introduce a second set of disclosure requirements for banks.
79

80. 1.2. The EU regulatory framework
Key messages
n The financial crisis has exposed weaknesses in the current prudential regulatory framework. Yet, this does not
call for a complete overhaul of the rules in place. EU policy makers should correct the identified weaknesses
by improving the Basel II framework.
n The current political momentum must not be lost, but the ‘Better Regulation’ approach needs to be respected.
In addition, the timing for the introduction of new rules is important, as measures which would have positive
effects in the long run could prove counterproductive if introduced in exceptional market conditions.
n ESBG supports the efforts to ensure that appropriate rules are in place to prevent excessive risk taking in the
future. However, new rules must respond to the identified problems; they should not endanger practices that
have proven their effectiveness from a market stability or risk management perspective.
Background: the Capital Requirements Directive (CRD)
The Capital Requirements Directive11 (CRD) is the framework legislative instrument in the
EU setting prudential standards for credit institutions and investment firms. The CRD
transposes into EU law the Basel II Framework12 and its three pillars: capital requirements
(Pillar 1), supervisory review (Pillar 2) and market discipline (Pillar 3). In the light of
prudential failures revealed by the crisis, the CRD has become a major target of regulators
and policy makers.
A first review of the CRD took place in 2009 and inserted already in European law regulatory
responses to perceived shortcomings. This review – referred to also as “CRD 2”13 –
amended the existing rules on the large exposures regime, the definition of hybrid capital
instruments, the prudential treatment applicable to securitisations, supervisory
arrangements and references in the CRD to liquidity risk management.
A set of further proposals for amendments to the CRD have been either issued already or
are in the process of preparation. The topics addressed include: the prudential treatment
of complex financial instruments and of the trading book, liquidity risk management,
procyclicality, leverage, and remuneration policies by banks.
ESBG views on the ongoing regulatory developments
General remarks
Basel II provides a valuable ESBG has consistently expressed support for the Basel II approach as transposed into the
prudential approach. CRD and our current assessment remains generally positive. Specifically, the Basel II
approach is considered to have contributed to improving risk management within ESBG
Member banks and definitely constitutes a welcome step forward with respect to Basel I.
Furthermore, Basel II has still large unexplored resources such as Pillar 2 which, once
consistently applied, has the potential of preventing much of the excessive risk-taking
that contributed to the current crisis.
11 European Parliament and Council Directive 2006/48/EC of 14 June 2006 relating to the taking up and pursuit
of the business of credit institutions (recast), OJ L 177, 30.06.2006 [Capital Requirements Directive].
12 Basel Committee on Banking Supervision, Basel II: International Convergence of Capital Measurement and
Capital Standards: a Revised Framework, June 2004, revised in November 2005 [Basel II framework].
13 Proposal for a Directive of the European Parliament and of the Council amending Directives 2006/48/EC and
2006/49/EC as regards banks affiliated to central institutions, certain own funds items, large exposures,
supervisory arrangements, and crisis management [SEC(2008) 2532] [SEC(2008) 2533]; European Parliament
Resolution adopted on 6 May 2009; forthcoming publication in the OJ.
80

81. However, in the light of the crisis some shortcomings in the Basel II framework became Amendments to Basel II/CRD
apparent. ESBG fully supports efforts to address these shortcomings and stands ready to should address proven
contribute to the process of improvement of the rules in place. shortcomings in
a systematic way.
Generally speaking, a more systematic and holistic approach to legislative amendments
in the aftermath of the crisis would be welcome. All relevant aspects should be looked at
and policy measures should be proposed only where pertinent. A straightforward
distinction between short-term and long-term objectives is crucial in order to avoid
regulatory mismatches. Furthermore, a clear prioritisation should be devised, taking into
account the substantial impact of the aggregate regulatory changes on the banking
industry and the related high administrative burden involved.
Looking ahead, there is cause for concern regarding the acceleration of the regulatory Regulatory amendments
activity, which implies a higher number of public consultations with ever shorter should observe the Better
deadlines. Although current circumstances are admittedly exceptional, such trend does Regulation principles.
generally not benefit the final outcome and may ultimately undermine the Better
Regulation approach. Especially when proposals are made in areas not previously covered
by legislation, sufficient time should be granted to stakeholders in order to analyse the
full potential impact.
It is particularly important that new regulatory measures fully respect the principle of Proportionality should be
proportionality. Regulatory measures and their application in practice should duly take confirmed as an overarching
into account the size, complexity, business strategy and riskiness of an institution – in principle.
particular having in mind that the smaller institutions with traditional banking activities
did not contribute to the crisis, but rather helped to mitigate its effects.
Last but not least, the global dimension of financial markets and the imperative of Regulatory reforms need
establishing a level playing field at international level are important. All regulatory efforts to pay due account to
should accordingly be as much as possible coordinated at a global level. Of course, the global level-playing field.
this should not prevent the EU from moving forward on its own, when reaching timely
agreement with its international counterparts does not prove possible.
Specific aspects
n Prudential treatment of complex financial instruments
Background:
Securitisation and the emergence of innovative complex financial instruments (such as
mortgage or asset backed securities, collateralised debt obligations, special purpose
vehicles and structured investment vehicles) have been long praised for their merits in
diversifying risks and fuelling financing possibilities. Yet, the crisis revealed that there
were misunderstandings in relation to the process of securitisation and the characteristics
of such products on the part of both financial institutions and regulators.
The perception of improved distribution of risks proved to be inaccurate in light of
several banks’ excessive use of complex instruments. Securitisation (when conducted
improperly) was among the main vehicles by which risk was actually spread.
To address the concerns related to securitisation, a new article (122a) was inserted into
the CRD at the occasion of the review finalized in April 2009. This new provision is the
first wide-reaching response of the EU to address the shortcomings identified.
81

82. On 13 July 2009, the Commission issued a new legislative proposal for amending the
CRD14 (“CRD 3”), on which it held consultations in Spring 2009. The aim of the
proposed changes is to ensure that minimum capital requirements better reflect the
risks attached to complex securitizations and exposures to off-balance sheet vehicles,
supplemented by adequate risk management and disclosure practices. The Commission’s
proposals build on regulatory proposals by the Basel Committee.
ESBG views:
Legislative amendments ESBG does not dispute the well-established lesson from the crisis that the riskiness of
should focus on ascertained securitisation exposures was not fully understood, which was reflected in shortcomings
inadequacies, without in their regulation. There is therefore a need for regulatory amendments that address
stigmatising securitisation inadequacies under the current framework. Nevertheless any such amendments
altogether. should give due consideration to the fact that securitisation – when conducted
properly, with due diligence and avoiding excesses – is a valuable mechanism for
diversification and risk transfer, which has proven helpful and will remain useful in the
future. Consequently, it is important that the envisaged new regulatory measures
focus on addressing observed excesses without stigmatizing securitization altogether,
as this could stifle securitisation activities completely.
New capital rules on Regarding resecuritisation, the envisaged new EU regulatory proposals should consider
resecuritisations should not that extensive qualitative requirements for the risk management of securitised assets
prevent ‘clean-up’ operations. have already been enshrined in the new Article 122a of the CRD. Additionally, institutions
have already started to improve internal processes of risk assessment in this regard.
Any suggestion to fully deduct all re-securitisations from capital would go against
Article 122a, and would not be supported by ESBG.15 In particular, a flat deduction of
resecuritisations from own funds would not provide any incentive for appropriate due
diligence and would run against the goal of ensuring proper risk management.
Such a deduction requirement potentially endangers the current efforts for restoring
banks’ balance sheets. In fact, many banks are currently being encouraged by their
regulators to undertake 'clean up' transactions to deal with toxic or potentially toxic
assets, where most of these transactions will count as resecuritisations. As these
structures are currently being developed, it is impossible to determine the exact capital
impact. However, these structures will most certainly not be developed if the
associated capital requirements make them unfeasible. Hence any such 'clean up'
operation risks being undermined.
n Prudential treatment of the trading book
Background:
Banks’ investment activities are mainly registered in the trading book. In light of the
crisis, policy makers have concluded that the regulatory capital treatment applicable to
the trading book and to market risk pursuant to the CRD has been too lenient.
Hence, various measures are currently contemplated by the European Commission and
the Basel Committee to strengthen capital requirements in the trading book.
Following a public consultation in March 2009, amendments to the CRD in view of
reinforcing capital requirements for trading book activities were included in the
legislative proposals issued on 13 July 2009 – “CRD 3”.
14 Proposal for a Directive of the European Parliament and of the Council amending Directives 2006/48/EC and
2006/49/EC regarding capital requirements for the trading book and for re-securitisations, and the supervisory
review of remuneration policies SEC(2009) 974 final SEC(2009) 975 final; 13.07.2009 [CRD 3].
15 In line with this new Article 122a, it appears logical that banks that are able to meet the qualitative
requirements for the review and monitoring of the securitised assets for a resecuritisation should be permitted
to apply the risk weights for resecuritisations. On the contrary, banks that are not in the position to properly
carry out the required credit review and monitoring of the securitised assets for a resecuritisation should be
subject to the sanctions prescribed in paragraph 5 of the new Article 122a. This would mean that they will have
to multiply the corresponding risk weighting for resecuritisations by a substantial capital requirement.
82

83. ESBG views:
ESBG understands the concerns motivating regulators’ proposal for increasing capital A one-size-fits-all approach
requirements to cover risks in the trading book. However, when devising solutions needs to be avoided.
some issues have to be looked at carefully. First, it is essential that capital requirements
are in line with the risks incurred by the individual institutions. Therefore, it is
particularly important to avoid a one-size-fits-all approach.
Second, internal models are a useful risk management tool and banks should therefore The use of internal models
have incentives to develop them on the basis of their internal risk management should not be discouraged.
processes. Rigid regulatory guidelines of a mainly conservative nature would hamper
the development of internal models. In addition, an overly drastic increase of capital
requirements is likely to discourage a transition from a standardised market risk
approach to a model-based approach, which is known to better reflect incurred
risks.16
The Commission’s alternative proposal to treat specific risks in the trading book Different rules should apply
exclusively according to the rules for the banking book is rejected by ESBG. The to the banking book and
application of the banking book rules to trading book assets with specific risks would the trading book.
be a considerable step backwards on the path to a well-established risk measurement
method for specific interest and equity risks. Such an approach is also problematic due
to the lack of risk sensitivity of the measuring procedure. This is because market risks
such as spread movements are not adequately reflected and concentration risks are
not adequately taken into account.
n Remuneration
Background:
Inappropriate remuneration and compensation policies were held responsible for the
short-termism in some banks’ business strategies and have been considered fatal for
sound, long term risk management in certain cases. As a result, the Commission has
included incentives for appropriate remuneration structures in the proposal for “CRD
3”. These proposals include the possibility for supervisors to impose measures, among
which additional capital requirements, on the entities whose remuneration policies are
considered inadequate under Pillar 2. In addition to the envisaged changes to the CRD,
the Commission has also issued two recommendations on remuneration – one of
which addresses specifically remuneration policies in the financial services sector.17 The
CEBS has also developed high-level principles on overall remuneration policies of
banks and financial institutions.18
ESBG views:
It is particularly important that compensation incentives should support long-term, Remuneration policy has
firm-wide profitability. In light of the current crisis, it appears that both the level and to support the long-term
the structure of remuneration may be factors that could encourage short-termism and interests of the whole firm.
induce high risk-taking to the disadvantage of a bank’s long-term interests and of
other stakeholders. Firms need to pay close attention to the alignment of
compensation incentives with the long-term interests of the whole firm.
16 Estimations of the industry indicate that the regulatory proposals discussed would result in a substantial
increase of capital requirements for the trading book. Such multiplication of the capital requirements stems
from the proposals regarding the modelling of incremental risks, as well as the introduction of portfolio-
independent stressed value-at-risk (VaR). This will annul capital-based incentives for institutions to pass from
the standardised market risk approach to a model-based approach.
17 Commission Recommendation 2009/384/EC of 30 April 2009 on remuneration policies in the financial services
sector, OJ L 120, 15.5.2009.
18 CEBS, High Level Principles on Remuneration Policies, 20 April 2009.
83

84. At the same time, it should be stressed that, while inappropriate compensation policies
have played a role during the current crisis, they were by far less relevant than other
factors. Therefore, a policy response is necessary to reflect this relative importance of
reforming compensation policies in light of the broader policy and regulatory review
currently underway in response to the crisis.
Regulation of compensation Furthermore, an approach focusing on an overall reform of banks’ remuneration
policies should focus on policies risks diverting attention from the key issue which needs to be addressed:
inappropriate incentives. namely, the compensations paid to top executives and some traders. In this context,
it should be acknowledged that the vast majority of bank staff is not involved in the
decisions which define a bank’s fundamental approach to risk and its risk-taking
strategies. A broad-brush approach would be unfair towards the largest part of the
staff of financial institutions. Policy and regulatory reactions targeting remuneration
issues should specifically focus on the inappropriate compensation incentives that
induced excessive risk-taking.
Remuneration policy is The responsibility for remuneration policy rests ultimately with the institutions
institution-specific and themselves. In this sense, it is important to highlight the principles of contractual
ultimate responsibility rests freedom and of non-interference in the determination of the amount and structure of
with banks. remuneration, which must be guaranteed. The relevance and incidence of national
labour legislation and regulations must also be acknowledged.
Given the differences within the financial sector, overall, firm remuneration policies are
very institution-specific. Consequently, a ‘one size fits all’ approach is not acceptable
in this field. Public regulation of remuneration policies should be confined to high-level
principles. Moreover, considering the number of non-EU firms operating in the internal
market, as well as the competition among banks for good employees, it would be
crucial that such high-level principles be adopted on a global level.
Remuneration-related Compliance with the principles on remuneration should be addressed by supervisors
concerns should be exclusively under Pillar 2. Imposing capital add-ons is not the proper way to ensure
addressed under Pillar 2. compliance with remuneration principles.
n Liquidity
Background:
Liquidity risk proved to be one of the previously neglected aspects by regulators and
institutions which ultimately contributed to the acuteness and amplification of the
crisis. Within a number of banks, the maturity transformation process in particular
appeared not to have been managed sufficiently well in order to be resilient enough
once liquidity in credit markets dried up. Regarding regulation, for the time being,
the treatment of liquidity risk is not harmonised at the EU level, but CEBS and the
Commission are currently working to minimally harmonise some aspects of liquidity
risk management (e.g. liquidity buffers, survival periods). This work could eventually be
transformed into a legislative proposal.
84

85. ESBG views:
ESBG supports a principles-based approach to liquidity risk management and supervision, Liquidity aspects should be
such as the one devised by CEBS in its 2008 recommendations.19 Only by resorting to subject to common high-level
high-level principles – addressing the most important aspects of liquidity risk management principles.
and supervision – can regulation possibly consider properly the multitude of business
models and the specificities of risk management. Furthermore, only a principles-based
approach allows for the flexibility required by changing market conditions.
In addition, ESBG supports the explicit reference to proportionality as an overarching Proportionality should guide
principle, as a guideline for liquidity risk management and supervision. ESBG would liquidity risk management
also encourage the explicit reference to materiality as an overarching principle. and supervision.
Specifically, overregulation can be avoided by making it explicit that the high-level
principles on liquidity are relevant in the case of material risks and material circumstances.
n Procyclicality
Background:
Procyclicality is one of the main topics currently on the agenda of EU policy makers.
Cyclicality is inherent in a framework such as Basel II, as its very objective is to render
capital rules more risk-sensitive. However, the question remains open as to whether
Basel II induces procyclicality. At the time of writing, the Commission is investigating
the degree of procyclicality in the CRD. A report with the Commission’s findings and
eventual regulatory proposals will be published by the end of 2009.
Although procyclicality may carry different meanings depending on the contexts,
in the present discussions EU policy-makers refer to it mainly as the tendency of capital
requirements to significantly fall during economic upswings and rise with downturns.
To counteract such a tendency the introduction of dynamic provisioning or counter-
cyclical reserves on banks in the EU is currently being contemplated in order to build
up through-the-cycle expected loss provisions for credit risks during good times and
use these provisions during downturns to cover incurred losses. A consultation
covering these aspects was issued on 24 July 2009 (consultation for “CRD 4”).20
A legislative proposal is expected to be published by the end of 2009.
ESBG views:
ESBG supports the calls to address procyclicality in the financial system, given that Only undesirable procyclical
undeniably some of its aspects have led to undesirable procyclical effects. Yet, it is effects should be addressed.
important to recognize that not all aspects of the financial system which are cyclical
are necessarily procyclical, to the extent that they should be subject to new regulatory
measures. An in-depth analysis of the building blocks of the financial system and of
their interaction is necessary to avoid taking incorrect approaches.
19 CEBS, Second part of technical advice to the European Commission on liquidity risk management,
18 September 2008.
20 European Commission, Consultation regarding further possible changes to the Capital Requirements Directive
[Consultation for CRD 4].
85

86. n Leverage
Background:
During the build up to the crisis, financial markets were characterised by abundant
liquidity and low returns, which drove market players to seek new investment
opportunities and higher yields. The innovative and complex financial instruments that
emerged were intended to offer those higher yields. This was combined with increased
leverage, which proved to be excessive. The problem is currently being addressed
globally by regulators. In the EU a new and simple metric for addressing leverage
(possibly called ‘leverage ratio’) is eventually envisaged to supplement risk-based
requirements. The European Commission is expected to present concrete proposals in
autumn 2009.
ESBG views:
A non-risk based leverage The building-up of excessive leverage in the markets should be limited, but this needs
ratio does not necessarily to be done in a way which effectively contributes to the creation of a safer and
help create a safer and sounder environment. The mere introduction of a supplementary ‘leverage ratio’,
sounder financial in addition to existing risk-based measures provided in the Basel II framework would
environment. certainly not automatically meet this objective. The details underpinning a new and
simple metric for addressing leverage will be crucial for its effectiveness. ESBG looks
forward to contributing to the forthcoming debates in order to identify the appropriate
way to achieve the objective of avoiding excessive leverage in the financial system.
n ESBG views on Pillar 2 / the supervisory review process
Pillar 2 still has largely The interplay between the three Pillars under the Basel II framework is of high value.
unexplored potential that The role and importance of Pillar 2, which obliges supervisors to review the adequacy
may prove valuable. and appropriateness of banks’ risk management processes, deserve specific attention.
Pillar 2 allows – amongst other things – the individualisation of capital requirements in
accordance with the concrete risk appetite of banks and for the application of targeted
supervisory measures when specific shortcomings in banks’ risk management process
are identified. Pillar 2 has so far been only put to limited use, but its potential should
certainly become fully exploited in the future.
Proportionality should guide Given that the core of Pillar 2 consists of a direct dialogue between supervisors and
supervisory action under supervised entities, it is crucial that the regulatory framework does not excessively
Pillar 2. constrain its conduct. Supervisors should have sufficient discretion to adapt the intensity
of controls and the substance of supervisory measures to the specificities of individual
banks, taking into account their size, complexity, business strategy and riskiness.
n Views on Pillar 3 / market discipline
Disclosure requirements Pillar 3 can make a substantial contribution to the achievement of financial stability.
are important for restoring In the context of the current crisis and in view of restoring investor confidence,
investor confidence. ESBG fully supports the aim of improving disclosure. In this sense, ESBG points to the
joint industry initiative21 devising good practice guidelines on CRD Pillar 3 disclosures
for securitisation. The objective of these industry guidelines is to achieve sound,
consistent and appropriately detailed implementation of the Pillar 3 securitisation
disclosure requirements across the EU and, hence, to contribute to restoring investor
confidence through improved disclosures and delivery of relevant and meaningful
information to users.
21 In December 2008 the European Banking Federation, the London Investment Banking Association, the
European Savings Banks Group and the European Association of Public Banks jointly presented good practice
guidelines on Capital Requirements Directive (CRD) Pillar 3 disclosures for securitisation.
86

87. There is also a need to provide appropriate information on the trading book, as well More disclosure does not
as to revisit the requirements for the banking book and the qualitative disclosures. necessarily mean more
In developing those disclosures it is important to strike the right balance between transparency.
more transparency, the reporting burden this places on firms, and the ability of other
market participants to assimilate and interpret the information.
Disclosure requirements should be suitable for improving the understanding of the risk
profile of an institution. However, the abundance of requirements does not necessarily
improve disclosure and may result in an overflow of details from which it will be hard
to select the really relevant aspects. Much of the information is already disclosed in
accordance with existing legislation or the recommendations of the Financial Stability
Forum/Financial Stability Board, making the risk of overlap very high. Therefore, in
many cases, the additional requirements over and above the status quo should not be
enshrined in EU legislation.
1.3. Deposit Guarantee Schemes
Key messages
n The recent revision of the Deposit Guarantee Schemes Directive reflects the importance of Deposit Guarantee
Schemes for stability on financial markets and consumer confidence.
n The different national Deposit Guarantee Schemes should be maintained, as they have the important
advantage of attributing local responsibility and social control.
n No further reduction of the payout delay which would come “on top” of the recent revision would be
manageable; the non application of such a potential provision would again be counterproductive for
consumer confidence.
Background
Since 1994 depositors throughout Europe can rely on a scheme which guarantees, in the
event of deposits becoming unavailable, that they will recover at least EUR 20,000 of their
deposits (and a minimum of 90% of their aggregated deposits22) within three months.23
According to the Directive 94/19/EC24 each Member State shall ensure that within its
territory at least one Deposit Guarantee Scheme (DGS) is introduced.
In its 2006 Communication on DGS25 the Commission sets out its approach to modernise
the legislation on DGS. It concludes that the current rules are sufficient for the time being,
while a number of self-regulatory measures should improve the functioning of the
schemes. The European Forum of Deposit Insurers (EFDI) has been assigned to play an
important role in the preparation of these measures. It has started its works in various
areas, e.g. topping up arrangements, exchange of information between DGS, risk-based
contributions, information to consumers and payout delay.
22 This provision is called co-insurance; in Member States applying this option, up to 10% of the losses can be
borne by the depositor.
23 From the date on which the competent authority makes the determination regarding the unavailability of the
deposits.
24 Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee
schemes, OJ L135, 31.05.1994.
25 European Commission. 2006. Communication from the Commission to the European Parliament and the
Council concerning the review of Directive 94/19/EC on Deposit Guarantee Schemes.
87

88. Triggered by the financial crisis, the decision was taken in autumn 2008 to revise the DGS
Directive. After a codecision procedure the revision of the Directive was adopted in
December 2008 by the European Parliament and in February 2009 by the Council.26
The revision mainly concerns three areas:
1) An increase in the coverage level to EUR 50,000 and, in a second step, to EUR 100,000
subject to a Commission impact assessment;
2) A reduction of the payout delay to 20 working days, with a possible additional
extension of 10 working days;
3) An end to the co-insurance option, according to which part of the loss has to be borne
by the depositor.
Possible further revision
Whereas the above mentioned revision of the DGS Directive focused on the most pressing
issues, it was decided that the Commission should analyse a number of further aspects,
with a view to presenting a report to be eventually accompanied by further proposals for
legislative changes by the end of 2009. The issues subject to this analysis include (among
others) the question of the full harmonisation of the amount of coverage, the possible
creation of a Community scheme and the possible harmonisation of risk-based contributions.
In addition, the Commission has decided to look again into the issue of payout delay.27
ESBG assessment and outlook
ESBG welcomes the recent The revised DGS Directive introduces a reduction of the payout delay to 20 working days
revision of the Deposit with a possible extension of 10 working days, which is ambitious but realistic.
Guarantee Schemes Consumers received confirmation that they will be timely and fully reimbursed up to the
Directive. coverage level. In this context ESBG in particular welcomes that the scope of the Directive
remains large and has not been limited to natural persons.
Looking at the issues subject to further analysis some aspects need stressing:
ESBG is opposed to n Community scheme: currently the national schemes differ considerably; this,
the creation of a however, does not constitute a weakness of the current state of play. What really
Community-wide scheme. matters is that each scheme is strong and safe. The national schemes are close to
customers, which strengthens their confidence. This approach should be maintained,
as it has the important attributes of local responsibility and social control. ESBG is
therefore opposed to the creation of a Community-wide scheme. The division of
responsibilities and risks would be extremely dangerous. Finally, ESBG questions
whether a Community scheme could be justified according to the principles of
subsidiarity and proportionality.
26 Directive 2009/14/EC of the European Parliament and of the Council of 11 March 2009 amending Directive
94/19/EC on deposit-guarantee schemes as regards the coverage level and the payout delay, OJ L68,
13.03.2009
27 European Commission. 2009. Consultation Document. Review of Directive 94/19/EC on Deposit Guarantee
Schemes.
88

89. n Payout delay: no further reduction “on top” of the recent revision would be A shortening of the payout
manageable. A whole range of steps needs to be carried out before the actual process delay would be unrealistic
of paying out can be tackled – in particular the closing of the bank, stopping and counterproductive to
transactions and calculating interest rates, identifying the customers and their consumer confidence.
deposits. For the action of paying out, a procedure needs to the defined, where the
safest solution seems to be that the customer (after getting a credit/debt balance
sheet) goes to another bank and asks to move some or all of his/her accounts from
the administration bank to this bank. However, this solution would take some time
because the new bank must ask the administration bank to move the customer’s
accounts. The payout from the DGS or the administration bank would also take some
time because those administering the DGS have to control the data, and the payout
must be executed through another bank which is member of the payment system.
It is also worth mentioning that the scheme needs to provide the necessary liquidity,
which might be done by realizing shares or bonds, realizing other assets, or by
borrowing money from the Central Bank or in the markets. Although it may take some
time it might be done parallel to the identification procedure. Finally, it is important to
note that the non-application in practice of potentially shorter payout delays would be
counterproductive to consumer confidence.
n Full harmonisation of the amount of coverage: The overarching view of ESBG
members is that minimum harmonisation, as it already exists, is useful and necessary,
as it allows for a fair level of protection of depositors all over Europe. Notwithstanding
this consideration, ESBG agrees with an increase of the coverage level to EUR 100,000,
which ensures a high level of coverage all over Europe. A full harmonisation would,
however – in the view of the majority of ESBG members – not sufficiently take into
account that the economic circumstances vary form Member State to Member State.
More importantly, these members consider that the existing systems should not be
weakened, as this would be counterproductive to consumer confidence and could
endanger financial stability. This being said, some ESBG members express concerns
regarding the competitive distortion that diverging coverage levels are provoking.
Therefore they are in favor of a fixed EUR 100,000 coverage level in order to prevent
abnormal shifts between countries and institutions and avoid distortions to competition.
In their opinion, even if most depositors are already covered by EUR 100,000, a higher
legal coverage – in particular for foreign branches – might provoke confusion and
unjustified shifts between institutions.
n Risk-based contributions: Safe and sound schemes on the national level do not
necessarily require the existence of risk-based contributions. Currently, risk-based
contributions are applied in a number of Member States, whereas the functioning of
risk-based contributions is diverging considerably between these Member States.
Harmonisation seems therefore difficult and complex. It needs to be considered that
in schemes which do not rely on risk-based contributions, the introduction of such
systems could lead to difficulties, especially for smaller institutions, resulting in
additional administrative and financial burdens. Therefore there should be no common
EU approach in this area. It should be up to Member States to decide whether they
want to apply risk-based contributions or not.
n Funding mechanisms: More harmonization of funding mechanisms would require
sufficiently long transition periods, as in the ongoing crisis situation procyclical effects
have to be avoided. While the principal characteristics of funding mechanism might be
harmonized at the EU level, some details of the layout should remain at the discretion
of the Member States. Short-term financing or long-term borrowing in case of need
may be accepted to complement the funding when a critical situation arises.
89

90. 90

91. 2. FINANCIAL REPORTING I –
FAIR VALUE ACCOUNTING
Key messages
n ESBG strongly supports a more flexible application of the fair value and especially concerning the measure of
financial instruments in illiquid markets.
n A practical approach and more analytical studies on the relationship between fair value accounting and
procyclicality are needed.
n ESBG advocates for coherence between disclosure requirements and a higher degree of harmonisation
between fair value and supervisory requirements in order to diminish the reporting burden for savings banks.
n User-friendly, simple and more standardised rules of fair value accounting, disclosure and calculation
requirements are needed.
n A thorough reconsideration of the existing accounting practices is necessary in the long term.
Setting the scene
As noted above, in its FSAP28, the European Commission outlined a series of policy
objectives to improve the Single Market for financial services. One of them was to move
towards a single set of financial statements for listed companies. Given the need to
overcome the differences between the accounting frameworks within Member States,
the Commission considered that the International Accounting Standards (IAS), later called
International Financial reporting Standards (IFRS)29, as established by the International
Accounting Standard Board (IASB) were the most appropriate benchmark for framing a
single set of such requirements.
One of the main changes that IFRS brought to traditional accounting is the introduction
of “fair value”. Fair value is defined by the IASB as “the amount for which an asset could
be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s
length transaction”.30 Fair value finds its main application with financial instruments.
Since the beginning of the 1980s, financial instruments underwent significant
developments in the banking industry. They were increasingly used by credit institutions
as a new source of business – as opposed to traditional activities – and as a consequence,
needed to be reflected conveniently in bank’s balance sheets.
28 European Commission. 1999. Financial Services: Implementing the Framework for Financial Markets: Action
Plan, Communication of the Commission,[COM(1999) 232], 11 May.
29 For clarification: while IAS were still at the first stage of discussion, their name changed to better reflect the
importance of transparency toward financial markets. As soon as 2001, International Accounting Standards
(IAS) changed name to be called International Financial Reporting Standards (IFRS). Thus, today these standards
are technically known today as IAS/IFRS.
30 International Accounting Standards Board (IASB). 2008: 2634.
91

92. Moreover, in a time of globalisation and increased international competition, it seemed
that disclosing financial information by using equity investor related methodologies
would make European listed companies more transparent and more competitive.
The United States was the pioneer in the application of fair value, with the appearance
of the Statements of Financial Accounting Standards 107 (SFAS 07) in 1992. With this
standard, the Financial Accounting Standards Board (FASB) obliged institutions to publish
the fair value of all their financial instruments in notes to the financial statements. In view
of this situation, the IASB proposed in 1999 to use fair value in the case of certain
financial instruments, particularly derivatives, as well as shares and other securities,
whether held for trading purposes or for sale.31
By November 2004, in the context of the process of endorsement foreseen in the IAS
Regulation32, the Commission had endorsed 33 IAS standards33 and had thus already
accomplished a significant unification of accounting standards within the EU. However,
the standard which aimed at valuating financial instruments at their fair value, called IAS
39 “Financial Instruments: Recognition and Measurement”, has been the subject to
several revisions and ongoing discussions. The Commission, taking into account various
issues and opinions, endorsed about 95% of the text of IAS 39 but carved out certain
provisions because – in agreement with most Member States and the European
Parliament – further assessment was considered necessary.
Recent developments in light of the financial crisis
Against the background of the financial crisis, the IASB, the European Commission and
several American institutions started to make efforts to curb the negative effects of a too
strict application of the fair value approach in autumn 2008. It was argued that mark-to-
market accounting, which forces banks to value assets at the estimated price they would
fetch if sold now, rather than at historic cost, could cause a cycle of falling asset prices
and forced sales that endangers financial stability.
The first move towards a more flexible application of the fair value approach was made
in the United States at the end of September 2008 as part of the Paulson Plan.
Specifically, the U.S. Securities and Exchange Commission (SEC) and the FASB issued
clarifications regarding the implementation of fair value accounting, allowing a more
flexible application, in particular regarding illiquid markets.
In the EU – notably at the occasion of the meeting of the Council of EU Finance Ministers
in October 2008 – the Commission and the IASB were mandated to make proposals to
guarantee a level playing field between the EU and the U.S. In mid-October, the IASB
issued amendments to IAS 39 “Financial Instruments: Recognition and Measurement”,
and IFRS 7 “Financial Instruments: Disclosures” that would permit the reclassification of
some financial instruments. The amendments to IAS 39 introduce the possibility of
reclassifications for companies applying IFRS which were already permitted under U.S.
Generally Accepted Accounting Principles (GAAP) in rare circumstances.
31 International Accounting Standards Board (IASB). 2008: 1927.
32 European Commission. 2000. Communication from the Commission to the European Parliament and the
Council. EU Financial Reporting Strategy: the way forward [COM(2000) 359 final], 13 June; Regulation (EC)
1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international
accounting standards, OJ L 243, 11.9.2002.
33 For further information Commission Regulation (EC) No 1725/2003 of 29 September 2003 adopting certain
international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European
Parliament and of the Council, OJ L 261, 13.10.2003 adopted 32 IAS Standards, and Commission Regulation
(EC) No 707/2004 of 6 April 2004 amending Regulation (EC) No 1725/2003 adopting certain international
accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the
Council, OJ L 111, 17/04/2004 adopted IFRS 1.
92

93. Responding to the urgency of the situation and without due process, the Commission
adopted these amendments in its Regulation 1004/2008/EC34 and expressed at the same
time the need to continue monitoring all accounting issues that could impact the stability
of financial institutions and financial markets, with a view to identifying further changes where
appropriate. As a follow-up, the Commission sent a letter to the IASB on 27 October 2008,
stressing the need for further action on some issues of importance, namely: fair value,
embedded derivatives, and the impairment of “available for sale” items. The Commission
stated that global solutions are preferable and that further actions should be subject to
appropriate due process strictly tailored to reflect the urgency of the situation.
In April 2009, the FASB unilaterally decided to implement significant revisions especially
regarding when to decide whether a market is not active and a transaction is not
distressed.35 In response to this development, in May 2009, the IASB issued proposals
that would replace fair value guidance contained in individual IFRS with a single, unified
definition of fair value.36 The proposals also provide guidance on using fair value
approaches in inactive markets such as those for complex financial products that can
hardly be given a value as a result of frozen financial markets. This initiative forms part of
the long-term aim to achieve convergence of IFRS with U.S. GAAP as it incorporates the
FASB’s recent guidance on fair value measurement.37
Regarding the classification of financial instruments, the IASB launched its proposal on
the revision of IAS 39 in July 2009. In addition, the IASB decided to assess users’ and
preparers’ opinions concerning the inclusion of the price of the credit risk when
measuring liabilities and it challenged the different methods to report impairment in the
value of financial assets. A separate IASB Exposure Draft on hedge accounting is expected
in late 2009.
The IASB aim is to replace IAS 39 completely in 2010 by issuing final guidances on
impairment, derecognition and hedge accounting. The IASB declared that it did not
expect the successor standard to IAS 39 to be mandatory before 2012.38
ESBG views
Being actively involved in the ongoing discussions on fair value, ESBG strongly supports A more flexible application
the initiatives taken by all parties concerned in order to achieve a more flexible application of fair value is needed.
of the fair value approach.
It is of high importance for the EU to adopt measures on fair value that take into account Exceptional importances
the exceptional circumstances in the markets and are in line with the measures taken in in EU and US markets have
the U.S. to be taken into account.
34 Commission Regulation (EC) No 1004/2008 of 15 October 2008 amending Regulation (EC) No 1725/2003
adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of
the European Parliament and of the Council as regards International Accounting Standard (IAS) 39 and
International Financial Reporting Standard (IFRS) 7; OJ L275, 16.10.2008.
35 Financial Accounting Standards Board (FASB). 2009. “Proposed FSP FAS 157-e, Determining Whether a Market
Is Not Active and a Transaction Is Not Distressed.” Board Meeting Handout. April 2. Connecticut; USA:
[http://www.fasb.org/board_handouts/04-02-09.pdf]. Accessed July 2009.
36 International Accounting Standards Board (IASB). 2009. Exposure Draft ED/2009/5 Fair Value Measurement,
comments to be received by 28 September 2009. London: [http://www.iasb.org/NR/rdonlyres/C4096A25-F830-
401D-8E2E-9286B194798E/0/EDFairValueMeasurement_website.pdf]. Accessed July 2009.
37 International Accounting Standards Board (IASB). 2009. Basis for Conclusions on Exposure Draft, Fair Value
Measurement, Comments to be received by 28 September 2009. London: [http://www.iasb.org/NR/
rdonlyres/D55E0BA1-5420-456B-8CCC-EB488BAD5B80/0/EDFairValueMeasurementBC_website.pdf].
Accessed July 2009. For specific information, see BC7 BC99 and BC 110.
38 International Accounting Standards Board (IASB). 2009. Exposure Draft Financial Instruments: Classification and
Measurement, Comments to be received by 14 September 2009. London: [http://www.iasb.org/
NR/rdonlyres/D1598224-3609-4F0A-82D0-6DC598C3249B/0/EDFinancialInstrumentsClassification
andMeasurement.pdf]. Accessed July 2009. For specific information, see pages 7 and 14.
93

94. Fair value must improve Nevertheless, ESBG sees the need to also take into consideration other accounting topics and
regarding financial to address challenges posed by the financial turmoil on an ongoing basis. An improvement
instruments in of IFRS rules regarding how to measure financial instruments when markets are no longer
illiquid markets. active is necessary. This is especially true as IAS 39, which concerns the valuation of
financial instruments, had only been intended as a short term carve-out standards39 when
introduced, and its revision should produce a lasting solution for financial instruments’
accounting. ESBG therefore welcomes the IASB initiatives of May 200940 on fair value
guidance as well as the initiatives on classification and measurement of financial
instruments of July 2009.
Reclassification should include In this respect, the issue of reclassification should not only refer to “held for trading”
all financial instruments instruments, but should include all financial instruments recorded “at fair value through
recorded “at fair value profit or loss”. Like financial assets held for trading, the current increase of credit spread
through profit or loss”. leads to inappropriate effects on profit and loss which does not contribute to the intended
strengthening of confidence in the capital markets. Limiting transfers to financial assets
“held for trading” would create undue competitive distortions between investments
banks (to which the current measure can apply) and retail banks (mostly excluded from
this measure, having no material amounts of instruments “held for trading”).
ESBG welcomes the possibility to reclassify “available-for-sale” financial assets to the category
“loans and receivables”. The current prerequisite (no active market at the date of initial
recognition) leads to the fact that new possibilities of reclassification cannot be applied
to certain financial instruments (for example debenture bonds and mortgage bonds).
A higher degree In addition, ESBG welcomes the Commission’s approach aimed at finding global solutions
of harmonisation between whenever possible. A higher degree of harmonisation between European and American
European and American fair fair value requirements is certainly needed for an easier comparison and to prevent
value is necessary. competition distortion. In order to achieve a level playing field, it is vital for securitized
financial instruments to be treated equally under both the IFRS and the U.S. GAAP.
Financial reports should be a key source of comparable, reliable, and consistent data
throughout the world. The same rules should apply to every actor in the financial industry.
Indeed, the goal is to create a real level playing field. Thus, having the further integration
of the different capital markets in mind, the convergence efforts made by the IASB and
the FASB are highly important.
EU-US convergence should However, this convergence should not be done at the expense of quality and transparency.
not be done at the expense More important than short-term actions which aim at mitigating the effects of the financial
of quality and transparency. crisis, a thorough reconsideration of the existing accounting practices and accounting
rules is necessary. This reconsideration must also be linked with proper audit systems.
39 European Commission. 2008. “IAS 39 Temporary Carve out as of January 2008.” Brussels:
[http://ec.europa.eu/internal_market/accounting/docs/ias/ias_39_carve-out.pdf]. Accessed July 2009.
40 International Accounting Standards Board (IASB). 2009. Exposure Draft ED/2009/5 Fair Value Measurement,
comments to be received by 28 September 2009. London: [http://www.iasb.org/NR/rdonlyres/C4096A25-F830-
401D-8E2E-9286B194798E/0/EDFairValueMeasurement_website.pdf]. Accessed July 2009.
94

95. Recent events have confirmed that over-reliance on market value not only significantly Over-reliance on market
increases pro-cyclicality, but in fact also results in providing an inaccurate image of a value significantly increases
company’s situation. In times of stress, the volatility in financial statements can increase pro-cyclicality.
dramatically, as shown by the current crisis. This also reflects possible “market
overreactions” notwithstanding the potential procyclical effects of capital requirements
under Basel II and/or risk management policies such as sale triggers and margining.
Possible remedies to these pro-cyclical effects of fair value measurement include
reclassifications, buffers or dynamic provisioning. All these solutions entail costs in terms
of transparency of information. In any case the quality of information needs to be
preserved. Overall, there is a need for more analytical studies on the relationship between
accounting and procyclicality. It is important to note that these analytical studies are
especially needed if financial markets happen to have imperfections. Indeed, in such a
case accounting rules are not necessarily a neutral measurement system and can lead to
(upward or downward) biased profit estimates.
ESBG agrees with the Commission that further actions should follow due process and be Accounting standards should
strictly tailored to each specific situation. Accounting standards should not be designed follow a practical approach.
in an abstract way which insulates valuation from underlying conditions and companies’
business practices and environment.
There is a need for simplicity and standardisation concerning IFRS rules on fair value There is a need for simplicity
disclosure and calculation requirements. In this respect, technical weaknesses regarding and standardisation.
IAS 39 rules on de-recognition and reclassification still have to be solved.
Additionally, disclosures also need to be simplified and take the specificities of the banking Disclosures need
sector into account, as, for instance, sometimes information asked for is unavailable. to be simplified and take
Moreover, the focus should be on the balance between the important workload that the specificities of the
financial reports constitute for banks and the necessity to disclose the best information in banking sector.
terms of quality rather than in terms of quantity. It is important to avoid information
overload of account users and to assure that the information provided fully reflects the
economic reality.
ESBG advocates for more coherence in the proposed IFRS defining fair value. It expects Harmonisation between
a higher degree of harmonisation between fair value requirements and supervisory fair value requirements and
requirements in order to diminish the reporting burden for banks. IFRS requirements for supervisory requirements
fair value can still appear too complex for preparers of financial reports as well as for is expected.
users. Users might have difficulty choosing between the IFRS figures from financial
reports and those disclosed for national supervisory guidances.
However, despite the strong signals from politicians and policy-makers on the pressing An in-depth reflection on
need for changes since the start of the turbulence in the financial markets, the necessary the application of fair value
reforms in this field will be difficult to carry out. Looking ahead, an in-depth and accounting is necessary.
unprejudiced reflection on the application of fair value accounting is necessary which
pays particular attention to the pro-cyclical effects of excessive reliance on market prices.
95

96. 96

97. 3. FINANCIAL REPORTING II –
IFRS AND SMES
Key messages
n ESBG supports a practical, cash-flow and solvency oriented approach regarding International Financial
Reporting Standards and SMEs.
n Banks which are not capital-market oriented should be allowed to use IFRS for SMEs.
Setting the scene
In May 1999, the European Commission launched the “Financial Services Action Plan”
(FSAP) to improve the Single Market for financial services.41 Amongst the objectives of
the FSAP was the urgent need to move towards a single set of financial statements for
publicly traded companies. The Commission considered that the International Financial
Reporting Standards (IFRS) – at the time called international accounting standards (IAS)
as established by the International Accounting Standard Board (IASB) – were the most
appropriate benchmark for framing a single set of accounting standards.
Although the IFRS were initially developed for publicly traded companies, the IASB started
a project called “IFRS and Small and Medium-sized Enterprises” (IFRS for SMEs) in 200342
which has been finalized with a stand-alone standard in July 2009. The IASB expressed
the need to achieve the same transparency for SMEs as for public entities – namely to
enhance the comparability between European SMEs and SMEs in other countries as well
as to avoid distortions in the Single Market due to different standards.43 More precisely,
the IASB’s twin goals were to meet users’ needs by providing them with comparable
information and limiting administrative burden for the preparers. The IASB’s proposal
was, as a consequence, based on full IFRS with modifications and simplifications.
In a first step, the IASB defined SMEs, in contrast to public companies, as entities that do
not have public accountability and do not publish financial statements for external users.
From 2004 to 2007, various discussion papers and questionnaires were issued and
roundtables organised. In February 2007, the Exposure Draft (ED) “IFRS for SMEs” with
a synthesis of the findings was published.44
41 European Commission. 1999. Financial Services: Implementing the Framework for Financial Markets: Action
Plan, Communication of the Commission [COM(1999) 232], 11 May.
42 International Accounting Standards Board (IASB). 2009. “IFRS for SMEs”. London: [http://www.iasb.org/
Current+Projects/IASB+Projects/Small+and+Medium-sized+Entities/Small+and+Medium-sized+Entities.htm].
Accessed July 2009.
43 International Accounting Standards Board (IASB). 2009. IASB publishes IFRS for SMEs Press release. London
[http://www.iasb.org/NR/rdonlyres/F4FFF721-62A4-4E02-BCB7-A0BD7A6D4FF8/0/PRIFRSforSMEs.pdf] July 2009.
44 International Accounting Standards Board (IASB). 2007. Exposure Draft International Financial Reporting
Standard for Small and Medium-sized Entities, Comments to be received by 1 October 2007. London:
[http://www.iasb.org/NR/rdonlyres/DFF3CB5E-7C89-4D0B-AB85-BC099E84470F/0/SMEProposed
26095.pdf]. Accessed July 2009.
97

98. In parellel, the IASB started a “field testing” of 116 SMEs in 20 countries in June 2007.45
The aim of the field testing was to evaluate the impact of IFRS for SMEs in reality and to
report any problems encountered. In February 2008, the European Financial Reporting
Advisory Group (EFRAG) issued a Final Comment letter on the IASB ED.46 EFRAG appeared
in general supportive of the development of a simplified set of standards. However, EFRAG
stated that the proposed standards could have been further improved and a number of
critical remarks were made, especially concerning administrative burden and cost of
implementing some proposed IFRS accounting disclosures.
On 9 July 2009, the IASB issued its Final Standard on IFRS for SMEs47 taking into account
some of the criticism concerning its project. The new standard is a complete stand-alone
document and contains five types of simplification from full IFRS48 especially concerning
recognition and measurement principles, such as a reduction of the number of required
disclosures. The necessary revisions are proposed to be limited to once every three years
and not once a year as for listed companies.
As opposed to accounting for listed companies, IFRS for SMEs are not compulsory for
SMEs. These standards have been developed outside the legal basis of SME accounting.
Listed companies have been relieved from most of the requirements in the 4th and 7th
Company Law Directives49 since 2002 when the Regulation 1606/2002/EC on the
application of international accounting standards (IAS Regulation)50 was adopted and
obliged publicly traded companies to present IFRS accounts by 2005. On the contrary,
these accounting directives still form the basis for SME accounting in the EU. Thus, the
legal basis for SME accounting is still the 4th and 7th Directives and as a consequence
IFRS for SMEs have to comply with the Directives to be enforceable.
In parallel to the IASB initiative, the European Commission started to amend the
Directives and focused on diminishing the administrative burden for SMEs. Therefore, the
Commission started a review process with the aim to simplify the accounting directives
for SMEs. In 2003, the Commission reiterated in its Recommendation “Concerning the
definition of micro, small and medium-sized enterprises”51, that easing the administrative
burden for SMEs was an important objective. Four years later, the Commission launched
an “Action programme on reducing administrative burden in the European Union”52
– again stressing the need to diminish accounting reporting requirements for SMEs.
45 International Accounting Standards Board (IASB) . 2007. “IASB launches field tests of SME exposure draft”.
Press Release June 18. London: [http://www.iasb.org/NR/rdonlyres/B60A8709-0388-4B3A-8865-
6A8081481D87/0/PRonSMEfieldtests.pdf ]. Accessed July 2009.
46 European Financial reporting Advisory Group (EFRAG). 2008. “Re: ED of a Proposed IFRS for Small and Medium-
sized Entities”. Letter February 7. Brussels: [http://www.efrag.org/files/EFRAG%20public%20letters
/IFRS%20for%20SMEs/EFRAG%20Output/EFRAG%20CL%20on%20ED%20IFRS%20for%20SMEs%20
(07.02.2008).pdf] Accessed July 2009.
47 International Accounting Standards Board (IASB). 2009. “IFRS for SMEs”. London: [http://www.iasb.org/Current+
Projects/IASB+Projects/Small+and+Medium-sized+Entities/Small+and+Medium-sized+Entities.htm]. Accessed
July 2009.
48 International Accounting Standards Board (IASB). 2007. “IASB published draft IFRS for SMEs”. Press Release
February 15. London: [http://www.iasb.org/NR/rdonlyres/CFC99B13-BF3C-4B71-AEF8-5B2960C16C2C/0/
PRonSMEsED15Feb07.pdf]. Accessed July 2009.
49 Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on annual accounts
of certain types of companies, OJ L222, 14.8.1978; and Seventh Council Directive 83/349/EEC of 13 June 1983
based on Article 54(3)(g) of the Treaty on consolidated accounts, OJ L193, 18.07.1983.
50 Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the
application of international accounting standards, OJ L243, 11.09.2002.
51 Commission Recommendation 2003/361/EC of 16 May 2003 concerning the definition of micro, small and
medium enterprises, OJ L124, 20.05.2003.
52 European Commission. 2007. Communication from the Commission to the Council, the European parliament,
the Economic and Social Committee and Committee of the Regions Action Programme for Reducing
Administrative Burdens in the EU[COM(2007) 23 final], January 24.
98

99. As part of this programme, in July 2007 the Commission published a Communication
“On a simplified business environment for companies in the areas of company law,
accounting and auditing”.53 In this Communication, the Commission made a strong
statement regarding the IASB’s Exposure Draft proposals and indicated that they were not
convinced that the current IASB work on SME accounting would provide sufficient
elements to simplify the day-to-day work of European SMEs. Instead, the Commission
identified a number of other measures that could lead to tangible simplification for SMEs
which all aimed at diminishing the administrative and accounting burden for SMEs.
These proposals covered various subjects, such as to exempt “micro entities” from
the application of the accounting directives which are typically mandatory for SMEs and
to include exemptions for SMEs from the requirement to publish their accounts.
In 2008, the Commission announced major initiatives on the same policy for small
businesses, based on its 2006 ambitious strategy for reducing administrative burdens for
SME’s by 25% by 2012.54 In April 2008, the Commission issued a proposal amending the
4th and 7th Directives regarding certain disclosure requirements for small and medium-
sized enterprises.55
The action programme on reducing administrative burden in the EU continued in 2009.
In February, the European Commission launched a Consultation on the “Review of the
Fourth and Seventh Company Law Directives”56 which again aimed to raise issues
relating to the modernisation and simplification of the Accounting Directives. The results
of the Commission Consultation were published in April 200957 and concluded that there
is a need to reduce the number of categories, to standardize key indicators and to abolish
additional requirements which mainly consist of quantitative information. In parallel, the
Commission published a Proposal to amend the 4th Company Law Directive regarding
micro-entities.58
Taking note of the evolution of the IASB’s work, the Commission’s initiatives and a
decision of the EU Finance Ministers Council meeting of July 200759, the European
Parliament drafted an own-initiative Report on “International Financial Reporting
Standards and Governance of the International Accounting Standards Board” in
September 2007.60 The draft report, prepared by MEP Radwan of the Economic and
Monetary Affairs Committee (ECON), analysed among other subjects IFRS for SMEs.
53 European Commission. 2007. Communication from the Commission on a simplified business environment for
the companies in the areas of company law, accounting and auditing [COM( 2007) 394], 10 July.
54 European Commission. 2006. Communication from the Commission to the Council, the European Parliament,
the Economic and Social Committee and Committee of the Regions A strategic review of Better Regulation in
the European Union [COM (2006) 689 final], 14 November.
55 European Commission. 2008. Proposal for a Directive of the European Parliament and the Council amending
Council Directives 78/660/EEC and 83/349/EEC as regards certain disclosures requirements for medium-sized
companies and obligations to draw up consolidated accounts [COM(2008) 195 final, 2008/0084(COD)], 17 April.
56 European Commission. 2009. “Review of the Accounting Directives” Brussels: [http://ec.europa.eu/internal_
market/accounting/sme_accounting/review_directives_en.htm]. Accessed July 2009.
57 European Commission. 2009. “Results of the Consultation on the Review of the Accounting Directives”.
PowerPoint presentation. June. Brussels: [http://ec.europa.eu/internal_market/accounting/docs/2009-results-
consultation-review_en.pdf]. Accessed July 2009.
58 European Commission. 2009. Proposal for a Directive of the European Parliament and of the Council amending
Directive 78/660/EEC on the annual accounts of certain types of companies as regards micro entities
[COM(2009) 83 2009/0035(COD)], 26 February.
59 European Council. 2007. “2813th Meeting Economic and Financial Affairs”. Press Release, 11464/07 (Presse 160),
July 10. Brussels: [http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ecofin/95233.pdf].
Accessed June 2009.
60 European Parliament. 2007. Draft Report on International Financial reporting Standards (IFRS) and the
Governance of the IASB (2006/2248(INI)). Committee on Economic and Monetary Affairs of 24 September
2007. Rapporteur: Alexander Radwan.
99

100. During the discussions in the ECON Committee it was stated that the standards proposed
by the IASB Exposure Draft are far too complicated for SMEs and refer in many places to
the full IFRS. Therefore, the need to have simplified IFRS for SMEs was emphasized.
Moreover, it was indicated that the EU should carefully assess the respective benefits of
committing to an IFRS standard for SMEs or developing its own independent and
comprehensive solution for SMEs. In addition, the MEPs took the view that any such EU
solution should fit into the IFRS conceptual framework without obliging SMEs to use the
full IFRS. A final remark was that no political mandate has been conferred on the IASB
to draft IFRS for SMEs. The Plenary adopted the report of the ECON Committee on
5 February 200861. In its Resolution of 24 April 200862 the Plenary added and
emphasized that the Community endorsement procedure may not be used for the
recognition of the IFRS for SMEs.
With the publication of the Final Standard from the IASB on IFRS for SMEs in July 2009,
stakeholders found numerous changes which aimed to take into account their previous
remarks. The Commission is currently assessing the implications of the IASB’s final
position paper and the potential use of IFRS for SMEs. While the Commission had shown
scepticism concerning the compatibility between the ED and SMEs’ needs, its view
currently appears less negative as the complexity of the final standard has been reduced.
Interviews with stakeholders, mainly SMEs from various Member States, made it clear
that enterprises seem to have some degree of appetite regarding the final IASB proposal.
Looking ahead, the Commission will decide on its next steps after a thorough legal
analysis, especially regarding potential conflicts with the 4th and 7th Directives.
ESBG views
IFRS for SMEs should not Being actively involved in the ongoing discussions, ESBG in general supports the IASB’s
result in the creation of and European Commission’s initiative to promote intelligibility in SMEs accounting
additional administrative standards. Savings banks are by tradition the natural business partners of SMEs, and thus
burden. ESBG’s major interest is to ensure that SMEs benefit from the best possible accounting
standards both in terms of simplicity and comprehensibility. However, Europe’s retail and
savings banks do not have any strong preference regarding the accounting standards that
their SME clients apply. More specifically, the members of ESBG can adapt to the
accounting standard used by SMEs for the purpose of conducting a credit assessment
– be it on a national General Accepted Accounting Principle or on an international
accounting standard specifically designed for SMEs. Thus, ESBG’s main concern is that
any new standards should benefit SMEs and not result in the creation of additional
administrative burden.
Against this background, the following points are important:
IFRS for SMEs should be IFRS for SMEs should be an option. It would not be appropriate to make it mandatory for
an option. all the SMEs active in the EU. If some might benefit from such a standard – especially those
active in several countries – others might find it excessively burdensome and might prefer
to continue applying their national standard. Therefore, for the moment, each SME should
be given the option whether to use any forthcoming IFRS for SMEs standard or not.
61 European Parliament. 2008. Report on International Financial reporting Standards (IFRS) and the Governance
of the IASB (2006/2248(INI)). Committee on Economic and Monetary Affairs of 5 February 2008. Rapporteur:
Alexander Radwan.
62 European Parliament. 2008. Resolution of 24 April 2008 on International Financial Reporting Standards (IFRS)
and the Governance of the International Accounting Standards Board (IASB) (2006/2248(INI)).
100

101. Tax reporting has to be an alternative to IFRS reporting. The effects of having different Tax reporting has to be an
sets of standards must be assessed before any measures are taken towards imposing the alternative to IFRS reporting.
new standards on SMEs. SMEs are generally under a legal obligation to report to their
national tax authorities according to national accounting standards. Thus, most small
companies already have in place information tools that would allow them to comply with
publication requirements without many additional cost efforts. Unless national tax
authorities accept reporting according to IFRS for SMEs, an obligation to use tax reporting
would lead to double reporting.
ESBG welcomes the improvement found in the IASB Final Standard. It agrees with the IFRS for SMES should be
IASB’s decision to simplify IFRS for SMEs and to contain them in a stand-alone document. user-friendly and
However, it is very important to make these standards even more user-friendly and standardised.
standardised. Users of SME financial statements usually have limited resources to devote
to an in-depth analysis of financial statements, and often value standardisation in the
preparation and presentation of financial statements more.
More reduction of disclosure requirements would be welcomed. In line with EFRAG’s More reduction of
view, ESBG appreciates that in the IASB’s Final proposal the disclosure requirements have disclosure requirements
been reduced compared to the full IFRS. However, further reductions in disclosures would be welcomed.
requirements could be achieved but should not go beyond the requirements set by
national accounting regulations.
With regard to the IASB proposal to revise the standards every three years, the time frame The time frame for
for modifications and further developments of the standards should be extended as modifications of the
timeframes which are too short may create unnecessary instability and additional standards should be
administrative burden for SMEs. extended.
IFRS for SMEs should focus more on short term and treasury issues rather than on IFRS for SMEs should focus
investment value. Users’ needs differ widely when comparing SMEs’ economic issues to more on treasury issues rather
those of larger corporations. Users of SMEs’ financial statements tend to be less interested than on investment value.
in value and, especially when speaking of banks, appear to be more interested in how
the entity will be able to meet its obligations towards its creditor on time. This is generally
a question of long-term versus short-term investment, where shareholders of large
corporations look for the fair value of their investment at any given moment while the
stakeholders of SMEs are typically interested in another kind of information. The focus
amongst users of SMEs’ financial statements is on the entity’s ability to generate positive
cash-flows in the normal course of business. In order to assess the risk of their credit
portfolio, banks feed their risk calculation models with information provided by the
financial statements of their clients. The publication of financial statements contributes to
a positive discrimination of small companies that have good economic results, allowing
them to have easier access to credit, not only from banks but also from private investors.
ESBG is concerned that these views, though they have been shared by the IASB, have not
been sufficiently taken into account when creating the standards.
Finally, the scope of entities obliged to report in accordance with full IFRS should not be Full IFRS should be applied
expanded to include banks and insurance companies as being publicly accountable by banks only if they are
entities unless they are capital-market oriented. capital-market oriented.
101

102. 102

103. 4. WHOLESALE PAYMENTS AND
SETTLEMENTS INFRASTRUCTURE
Key messages
n Savings banks certainly support the continued development of central bank infrastructure that effectively
enables finality and certainty.
n However, it must be stressed that sight cannot be lost of the public-good dimension of these initiatives – in stark
contrast to commercial settlement platform initiatives.
n Particular care should be paid to ensuring that the level playing field is not inadvertently jeopardized – for
example by constraints that make direct access to payment and settlement systems unattractive, and/or pricing
schemes that unduly – in a public-good context – reward larger transaction volumes.
Background
Wholesale payments are payments instructed and received by credit institutions, financial
institutions (and, in the future, payment institutions), National Central Banks (NCBs),
and/or other authorized institutions or entities. Such payments are either payments made
between institutions for their own account, represent the bilateral settlement of retail and
commercial payments, are payments made by ancillary systems such as payment and
securities clearing systems, or are transactions made by NCBs in relation to monetary policy.
With the introduction of the euro, integration has progressed as regards wholesale
payments.
On one side this is due to the fact that the infrastructure for clearing and settling
wholesale payments (also often referred to as “high value payments” or “urgent
payments”) has changed.
The introduction of the euro saw the activation of the TARGET63 system – first as a bridge A fully integrated Real Time
between national Real Time Gross Settlement (RTGS) systems, and now as an integrated Gross Settlement system will
system – although the national dimension has not completely disappeared (notably with be complemented by central
the capability for NCBs to manage bank accounts locally, and a certain number of other management of collateral
functions of the system). and a real time delivery
versus payment structure
In addition, the advent of the TARGET system has meant that traditional correspondent for securities.
banking has been redefined in a number of instances – although it has far from disappeared
altogether from the eurozone, as some pundits were only too keen to expect and promote.
63 Trans-European Automated Real-time Gross settlement Express Transfer, introduced in 1999.
103

104. Certainly the TARGET (and related systems) infrastructure has successfully passed the test
of the recent financial crisis. Indeed, in the face of the level of shocks experienced by high
value payments and securities systems in the last months of 2008, and the dramatically
increased volume of activity, one may only draw the conclusion that the infrastructure
functioned as it was built and expected to (i.e. well). Indeed, no significant increase in
average settlement time has been noted throughout the financial shock period (even at
the time of the default of Lehmann Brothers).
At the same time, experience in the midst of the financial shock has served to highlight
the critical role played by central counterparties. This is an area where certainly
integration is all but complete. This would tend to prove that deeper integration
continues to be a valid objective for wholesale payments, yet alone it is not the response
to all the challenges these systems can be confronted with.
ESBG preliminary assessment
Both at the European and international level the payments landscape is characterized by:
n Continued regulatory and supervisory demands for certainty and finality of payments,
transparency of conditions, and use of payment systems for policing purposes (e.g.
FATF – Fight against Terrorist Financing64 and AML – Anti-Money Laundering65).
n The demand for payment schemes to separate notably processing activities from the
rulemaking and scheme management functions.
n A demand for the participation of other stakeholders in society to the definition and
management of payment services.
n A growing place for international standards (mostly ISO) as opposed to national
standards.
These developments meet the requirements of policy makers and regulators for continuously
increasing confidence in payment systems and removing barriers to competition in order
to decrease costs. But the direct consequences of these developments are also that:
n Regulatory demands need to be met by continued investment in technology and
seeking economies of scale. This prompts many banks to become indirect rather than
direct participants in payment infrastructures.
n Detaching scheme management and payment processing activities on one side
requires establishing new governance structures (in which a place may be reserved for
other stakeholders). On the other side this separation drives the emergence of potent
payment processors who will weight on standards and product evolution.
n The influence of individual players on the definition and decision making in standards
is waning.
64 European Council Framework Decision (2002/475/JHA) of 13 June 2002 on combating terrorism, OJ L164,
22.06.2002.
65 Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of
the use of the financial system for the purpose of money laundering and terrorist financing, OJ L 309,
25.11.2005.
104

105. These developments provide some market participants with the opportunity to leverage
their market positions further and create new barriers to entry and/or to a level playing
field. Barriers to competition could be raised in the following situations:
n For indirect participants in payment systems, the cost of executing payments increases
compared to the direct participants with whom they compete in the retail market.
This is as true for RTGS systems as for automated clearing houses e.g. STEP2.
In addition indirect participants will be at a disadvantage when the D+1 execution
time mandated by the Payment Services Directive (PSD) comes into force.
n In addition, larger participants in payment systems tend to request steeply decreasing
pricing scales for volumes submitted – which include those of indirect participants.
Certainly for RTGS systems such diversion of public good should not be supported.
n Attempts to levy royalties when co-operatively developed rules are to be re-utilised
have been noted.
n With most standards now being developed within ISO, the influence on decision making
rests with those banks who can dedicate staff to be appointed national representatives.
They have a greater say on the scope of changes, and thus on costs adjustments.
All of these represent threats to the level playing field and to the bottom line of retail
banks in particular.
Coming developments
In 2007 the Eurosystem launched the study of the TARGET2 Securities (T2S) project. Central Securities
The concept is to create a real time settlement system in central bank money for securities Depositories to outsource
transactions throughout the eurozone – and possibly open the platform to non-euro settlement services to
currencies as well. In effect, this would lead Central Securities Depositories (CSDs) to the Eurosystem in
outsource to the Eurosystem the settlement service they have provided up to now. the T2S project.
Following a feasibility study, the Governing Council decided in July 2008 to go ahead with
the project. A 2013 launch date has been set. T2S will be operated by the Eurosystem on
a cost recovery, not-for profit basis.
This Eurosystem initiative is viewed as the opportunity to foster harmonisation for securities T2S is pro-competition.
processing and provide in the near future a settlement system for all euro-denominated
securities (equities, fixed income, funds and Eurobonds). T2S is pro-competition and will
allow full transparency on prices and cost recovery. It will increase competition between
custodians by extending the market size and providing options for direct CSD access.
With fair and equal access, the project will provide asset services with the opportunity to
compete on a fair basis. The T2S initiative should also generate savings both at the back
offices level and in terms of collateral requirements. T2S will further enable CSDs to
comply with the Clearing & Settlement Code of Conduct66 for infrastructures:
transparency and fair access requirements should be met.
66 European Code of Conduct for Clearing and Settlement by the Federation of European Securities Exchanges,
the European Association of Central Counterparty Clearing Houses and the European Central Securities
Depositories Association, 7 November 2006.
105

106. This project is supported by the savings banks community who throughout the
consultation highlighted several principles with which the initiative should comply:
n In line with ECB standards, full transparency on tariffs related to T2S services (the CSDs
being the actual customers of the Eurosystem in this instance) is expected;
n T2S should not lead to an increase in costs for settlement at domestic level.
n Pricing should not discourage direct connection.
n The economic business case for T2S should be convincing enough (also from a
methodology and validation perspective) to trigger rapid acceptance by key participants.
n A cross-subsidisation between T267 and T2S should be excluded.
n Should discounts be granted to larger users, the discount scheme should acknowledge
the public-good dimension of the initiative and be in line with the overall objectives to
generate efficiencies and foster innovation in the Clearing and Settlement industry on
a pan-European scale.
Savings banks welcome The savings banks community also welcomes the “Collateral Central Bank Management”
“Collateral Central Bank (CCBM2) project, a further initiative of the Eurosystem to facilitate the mobilisation and
Management”. transfer of collateral throughout the EU. CCBM2 will be foremost a Eurosystem internal
system, yet it can provide significant opportunities for users in Europe, provided several
pre-conditions are met:
n Participation of Eurosystem NCBs would be on a “voluntary basis”. It has been
suggested that on the contrary the development of CCBM2 would be the signal of a
clear commitment of all Eurosystem NCBs to use it.
n Participation of all Eurosystem NCBs is also desirable when it comes to cost recovery.
Although again this will be foremost a Eurosystem internal system, ultimately end
users will support its cost. It is therefore important to aim at the widest possible
acceptance and usage basis.
n Whilst the benefits expected from the CCBM2 project will be greatly enhanced by
TARGET2 Securities, the timeline of the two projects should not be tied. On the
contrary, CCBM2 should be deployed in the market as soon as possible provided there
is no regression in terms of service or in terms of costs.
n CCBM2 should be able to accept collateral denominated in currencies other than
the euro. In particular government bonds in non-euro currencies should be eligible
and supported.
n Users will be able to perform in genuine real time – also with intraday effect – all
actions which allow them to amend their collateral position. Of course, consultation
of positions must be accessible in real time as well.
n External collateral management systems (such as tri-party collateral management
services) as well as 2-tier collateral management organisations (e.g. correspondent
bank arrangements put in place by decentralised banks) should be easily integrated
into and make use of the CCBM2 architecture and service.
n CCBM2 (as well as TARGET2 Securities) will deliver their desired benefits not only
through the deployment of well designed technical capabilities. Further harmonisation
in legal aspects as well as market, Central Bank and CSD practices are required for
these projects to bring effective advances.
67 Next generation of the TARGET system, introduced in 2007.
106

107. The savings banks also follow and support work leading to the development of a (or Savings banks support the
more) European central counterparty (CCP) for credit default swaps (CDS). Both the ECB development of a European
and the European Commission share the view that there should be at least one CCP in central counterparty for
the euro area. Savings banks support the principle that the location of a core market credit default swaps.
infrastructure should correspond to the location of the market, which brings benefits to
all stakeholders. Whilst the supervisors’ and regulators’ objective of a safe CCP is certainly
shared, the following consideration should be taken on board when establishing it:
access criteria are very important and should be risk-based – there is a need for direct and
indirect membership to guarantee the safety of the CCP. Both the buy side and the sell
side of CDS markets must be taken into consideration. CCP membership should be
mostly the banking community; with buy-side access through an intermediary unless a
strong capital base can be evidenced. A framework to protect and safeguard the
collateral of the buy side (with segregation of collateral) should be developed.
107

108. 108

109. 5. CAPITAL MARKETS I – SECURITIES
Setting the scene
The Financial Services Action Plan68, a set of measures adopted in the EU during
1999-2004, put a strong focus on wholesale financial services with the aim to create a
real internal market in this area by 2004. This has led to a highly regulated environment
for securities and investment funds, while a few players (such as Credit Rating Agencies
and hedge funds) stayed outside the scope of direct regulation.
This wave of regulation also had a huge impact on retail and savings banks which serve
as intermediaries for investment services for their retail clients, and which (to a smaller or
larger extent) also issue financial instruments themselves. Simultaneously capital markets
have become more and more accessible to retail clients, and retail labelled/ oriented
products have been extended.
The Financial Services Policy between 2005 and 201069 followed the guideline of a
‘dynamic consolidation’ of progress already achieved. Simultaneously a number of
measures aimed at removing the remaining economically significant barriers. Finally, the
financial crisis has led to action in areas, which formerly had not been subject to direct
regulation (e.g. hedge funds) and to an acceleration of the Commission’s work in other
areas (e.g. retail investment products).
This section will provide a tentative assessment of the legislative instruments of main relevance
to ESBG members in the area of capital markets and will outline possible ways forward.
5.1. Markets in Financial Instruments Directive (MiFID)
Key messages
n MiFID has introduced significant changes and was accompanied by a heavy burden for credit institutions
(in terms of administration, costs and human resources).
n During the first year of practise of MiFID ESBG members mainly focused on compliance with the rules
established. A period of continuity is of utmost importance to enable all players to exploit the possible
business opportunities offered by MiFID.
n It is still early to make a final judgement on whether MiFID was successful in achieving its stated objectives or
not. However, ESBG’s preliminary assessment indicates that MiFID has not fully reached its envisaged aims.
n The revision of MiFID should not only focus on identifying weaknesses and administrative burden. It should
also be taken as an opportunity to assess whether introducing such radical changes benefits equally and
adequately all market participants and fully respects the principles of subsidiarity and proportionality.
68 European Commission. 1999. Commission Communication on Implementing the Framework for Financial
Markets: Action Plan. [COM(1999) 232 final], 11 May.
69 European Commission. 2005. White Paper on Financial Services Policy 2005-2010 [COM(2005) 629 final]. 1. December.
109

110. Background
The 1993 Investment Services Directive (ISD)70 constituted the first attempt to create an
EU framework for the provision of investment services. While recognizing that the
introduction of the ISD had had a number of positive consequences for Europe’s markets
in financial services, the Commission referred in its analysis of the ISD to a number of
important weaknesses, which from its point of view had to be corrected.71 In particular,
the following points were raised by the Commission:
n The Commission highlighted that the ISD left markets fragmented along national lines
due to the option of imposing a concentration rule.72
n In addition, the Commission determined weaknesses in the mutual recognition
concept for investment firm licences due to insufficient harmonisation.
n Furthermore the Commission criticised that the ISD failed to cover the full range of
investor-oriented services as well as the full range of financial dealing.
n Finally the Commission stressed that cooperation between supervisors was
underdeveloped and did not address newly arisen regulatory and competitive issues.
The MiFID Directive 2004/39/EC73 (adopted in 2004) and its implementing rules74
(adopted in 2006) replaced the ISD and aimed to address the weaknesses described
above. MiFID introduced stricter and more equal rules for all financial instruments and all
trading venues with the aim to create a true single market, increase competition in the
provision of services and marketplace functions, and to promote an integrated financial
trading infrastructure. Furthermore the MiFID influences the conduct of business for
investment service providers and aims to strengthen investor protection.
ESBG preliminary assessment and outlook
MiFID has had a significant MiFID has been in effect since November 2007. It constitutes the continuation of the ISD,
impact; a period of continuity but to some extent can be described as a ‘revolution’ due to the significant impact it has
is now needed. had on the organisation of the financial markets and its players. ESBG members had to
undertake huge efforts to be MiFID-compliant from November 2007 onwards, not least
because the transposition was delayed in a number of EU Member States, which
shortened the preparatory phase for industry. For these reasons, ESBG members have not
yet been able to make the best of all possible potential business opportunities offered by
MiFID to date. In this context, it is important to ensure that a period of continuity be
respected, enabling all players to fully adapt to this new environment and exploit new
business opportunities.
70 Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field, OJ L 141, 11.06.1993.
71 European Commission. 2000. Communication to the European Parliament and the Council Upgrading the
Investment Services Directive (93/22/EEC) [COM(2000)729 final], 15 November.
72 The ISD enables Member States to opt for the application of the concentration rule, i.e. orders given by
investors within their national territory must by law be carried out on official markets.
73 Directive 2004/39/EC of the European Parliament and Council of 21 April 2004 on markets in financial
instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European
Parliament and of the Council and repealing Council Directive 93/22/EEC, OJ L 145, 30.04.2004.
74 Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European
Parliament and of the Council as regards organisational requirements and operating conditions for investment
firms and defined terms for the purposes of that Directive, OJ L 241, 02.09.2006 and Commission Regulation
(EC) No 1287/2006 of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of
the Council as regards recordkeeping obligations for investment firms, transaction reporting, market
transparency, admission of financial instruments to trading, and defined terms for the purposes of that
Directive, OJ L 241, 02.09.2006.
110

111. After a year and a half year of experience with MiFID it is still too early to make a final
judgement on whether it was successful in achieving its stated objectives or not. For the
time being, only preliminary responses can be given as to whether MiFID has been
beneficial for investors in financial services, investment firms and generally the EU single
market in financial services. Similarly, only tentative conclusions can be drawn regarding
the opportunity for the EU to venture into similar initiatives in the future.
Despite the duty to be cautious in any assessment due to the limited experience with
MiFID, it is worth highlighting two areas of vital importance, in which ESBG members
have experienced the most important changes (in their daily business practice): the conduct
of business rules and the organisation of market places.
Assessment of the impact of MiFID in the area of ‘conduct of business’
An important aspect of MiFID is that it contains many provisions which have had and still
have a strong impact on the way Europe’s investment firms have to conduct their
business. This concerns in particular the information and the advice to be given to
clients.75 In this context, it can be said that the impact of MiFID on the relationship to
clients has generally been strong.
It should be highlighted here that ESBG members have traditionally put particular focus
on the relationship with their clients (“relationship banking”). Thus, it is not the level of
priority of the issue that has changed with the introduction of MiFID, but rather the
practical arrangements in place. In particular, MiFID has led to important changes
especially in the following areas:
n MiFID has changed firms’ internal organisation. From a very practical and MiFID has changed firms’
organizational point of view, MiFID has had a considerable influence on several internal organisation.
departments in banks, which are not directly related to the relationship with investors,
such as the marketing-, the compliance- and the IT/data processing departments. In all
these departments banks have had to carry out important investments as a result of
the introduction of MiFID.
n Information to customers: with MiFID, banks’ clients, as potential investors, receive
more written information about the financial products.76 ESBG considers that MiFID
has generally led to an overload of written information. This concern is confirmed by
feedback ESBG member banks receive from their clients, who feel overwhelmed by the
information they now receive from their provider of financial services.
n MiFID affects firms’ relationships with clients. The relationship between banks and MiFID affects firms’
their customers: MiFID has also influenced the direct relationship between the bank relationships with clients.
advisor and his client:
- Changes in this area mainly stem from the concept of ‘client categorisation’, which
introduces a distinction between “retail client”, “professional client” and “eligible
counterparty”.77
- MiFID has led to considerable changes in the area of advice. MiFID has also led to MiFID has led to considerable
considerable changes in the area of advice. It formalises78 the concept that the bank changes in the area of advice.
needs to obtain the necessary information regarding the (potential) client's
knowledge and experience in the investment field relevant to the specific type of
product or service, his financial situation and his investment objectives. Against this
background a piece of advice which is suitable and appropriate for the (potential)
client should be given.
75 For further details please see below.
76 See in particular Art. 19 (2)- (3) of the Level 1 Directive and Art. 27 and 29-35 of the Level 2 Directive.
77 See in particular Art. 4 (10)- (12), Art. 24, Annex II of the Level 1 Directive and Art. 28 of the Level 2 Directive.
78 See in particular in Art. 19 (4)- (7) of the Level l Directive.
111

112. ESBG would like to highlight that ESBG member banks have always put a strong
focus on this aspect. Regrettably, they are now confronted with the dissatisfaction
of some of their clients who judge as a useless burden/ paternalism the numerous
questions asked by their banking advisor in order to be in a position to classify the
client and to give him/her appropriate advice. This concern in particular applies to
clients, who have already been active in the financial markets in the past. It is
therefore true that the relation to their clients has become generally more formal
and bureaucratic. Simultaneously ESBG considers that the formal focus on customer
protection has been strengthened. In this context several ESBG members regard the
success of MiFID as questionable.
Assessment of the impact of MiFID regarding the organisation of financial markets
While the impact of MiFID on the relationship to clients can be described as rather
immediate, the assessment of MiFID’s impact on market structures and market access
opportunities is less straightforward and thus indeed, even more difficult.
To start, the main objective of MiFID in this area should be recalled: creating a single EU
market for the trading of financial instruments, which would result in good prices for all
market participants based on a high degree of competition between the different
execution venues. With the elimination of the concentration rule, widely regarded as
incompatible with the EU single market and by some as old-fashioned, a series of
provisions have been introduced in MiFID to guarantee market integrity and a good
degree of interconnection between competing execution venues. These include:
n Rules on pre- and post-trade transparency79;
n An obligation of best execution80; and
n Rules on the handling of orders.81
Also, it should be recalled that according to MiFID three categories of market participants
can execute orders: regulated markets, Multilateral Trading Facilities (MTFs) and firms
(especially when they act as systematic internalisers, i.e. when systematically dealing on
own account by executing clients’ orders outside regulated markets and MTFs).82
The idea is therefore to organize competition and level the playing field between different
categories of venues.
MiFID, has changed the Whether the provisions contained in MiFID fully achieved their aim of more competitive,
EU financial markets, liquid, integrated and efficient financial markets cannot be conclusively answered at this
notably through the point in time, as experience with MiFID is still limited. Undoubtedly, important changes
appearance of MTFs. have already been observed in a number of Member States, which are a direct consequence
of MiFID. They mainly relate to the appearance of number of MTFs, such as Chi-X and
Turquoise. As a reaction, in some Member States the more traditional players (regulated
markets) decreased their prices or diversified their offer in terms of services. As a
consequence, some ESBG members can now operate with decreased trading costs for the
benefit of their customers, which was one of the main priorities of MiFID.
79 See in particular Art. 4, 22, 27, 28, 29, 30, 44, 45 of the Level 1 Directive.
80 See in particular Art. 19 (1) and 21 of the Level 1 Diretive.
81 See in particular 19 (1) and 22(1) of the Level 1 Directive.
82 For the definitions see Art. 4 (7), (14) and (15) of the Level 1 Directive.
112

113. However, considerable differences between the different Member States exist. Differences between
The comparison of two former markets applying the concentration rule, notably France Member States exist.
and Spain, confirms these divergences; in France about 65% of the CAC trades are
handled on the traditional markets, whereas in Spain still 99,8% of the IBEX 35 are
handled on the Madrid stock exchange, which is due to the late entry of MTFs in this
market.83 More developments can be expected in this area.
In ESBG’s view the creation of MTFs can be described as a success, at least in certain Rules regarding Systematic
markets, since it resulted in enhanced competition, which can be beneficial for the Internalisers are too
investor. On the other hand, the provisions regarding Systematic Internalisers (SIs) seem bureaucratic.
less successful, as these rules are too bureaucratic.
An assessment about the implications of MiFID on the functioning of the market can only
be preliminary at the current stage and needs to be continued.
Outlook
Looking ahead, the Commission envisages a review of MiFID in 2010. On the basis of the
2008 results of the transposition check conducted by the Commission84, such a review
could focus on the following issues: transaction reporting, access to central counterparty
and clearing and settlement facilities. In addition, the Commission concludes that
(further) Level 3 guidance could be useful, in particular regarding the definition of
investment advice and the cooperation between home and host competent authorities.
ESBG fully supports the Commission’s conclusions regarding Level 3 guidance, suggesting
that additional Level 3 guidance could be given regarding the “suitability test”,
“execution only” services and “best execution”; in this context ESBG welcomes the fact
that the Committee of European Securities Regulators (CESR) is currently consulting on a
related issue: the treatment of complex and non-complex products for the purposes of
the appropriateness requirements.85 ESBG would also welcome future work on the issue
of access to central counterparty, clearing and settlement facilities and transaction
reporting. Regarding this last issue, CESR could establish a list of all EU investment firms
subject to transaction reporting.
The revision of MiFID should also be taken as an opportunity to assess whether MiFID’s revision needs to be
introducing such radical changes benefit all market participants in the same manner, in prepared carefully.
full respect of the principles of subsidiarity and proportionality. Finally, all possible measures
should be evaluated against the background of avoiding new administrative burdens.
83 Fidessa fragmentation index, report for week ending 14 August, http://fragmentation.fidessa.com/stats/.
84 European Commission. 2008. MiFID Transposition Quality Check Results of call for evidence from market
participants.
85 CESR/ 09-295.
113

114. 5.2. Prospectus Directive
Key messages
n Overall, ESBG members have found functional the practical application of the Prospectus Directive.
n However, there has been considerable administrative and financial burden caused by the implementation of
the Prospectus Directive.
n The foreseen revision of the Prospectus Directive is a good opportunity to cut the burden it imposes and ESBG
in principle welcomes the Commission’s related reflections.
n The review of the Prospectus Directive has to address additional issues. In particular the exemption from the
obligation to issue a prospectus for credit institutions where the total consideration is less than 50 million
euro, should be extended.
Background
Measures concerning the conditions for admission of securities to official stock-exchange
listing and the financial information that listed companies must make available to
investors have been subject to EU rules since the end of the 1970s (Directive 1979/27986,
1982/12187, 1988/62788). Within the Financial Services Action Plan (FSAP) a consolidation
process of these diverse measures was initiated: Directive 2001/34/EC89 consolidates the
above mentioned Directives into a single Directive without adding substantive changes.
Subsequently the rules were updated, notably by the Prospectus Directive and the
Transparency Directive.
The Prospectus Directive (2003/71/EC ) harmonises requirements for the drawing up,
approval and distribution of a prospectus to be published when securities are offered to
the public or admitted to trading on a regulated market situated or operating within a
Member State and thus creates a single passport for issuers. The Directive also reinforces
investor protection as all prospectuses issued in the EU must provide clear and
comprehensible key financial and non-financial information that enables the investor to
make informed investment decisions.
ESBG views
General assessment
Overall, ESBG members consider the practical application of the Prospectus Directive
functional, although it involved a high administrative and financial burden.
Investors now receive more complete and clear information. However, positive feedback
from clients regarding the changes introduced by the Prospectus Directive remains limited.
86 Council Directive 79/279/EEC of 5 March 1979 coordinating the conditions for the admission of securities to
official stock exchange listing, OJ L 066, 16.03.1979.
87 Council Directive 82/121/EEC of 15 February 1982 on information to be published on a regular basis by
companies the shares of which have been admitted to official stock-exchange listing, OJ L 48, 20.02.1982.
88 Council Directive 88/627/EEC of 12 December 1988 on the information to be published when a major holding
in a listed company is acquired or disposed of, OJ L 348, 17.12.1988.
89 Directive 2001/34/EC of the European Parliament and of the Council of 28 May 2001 on the admission of
securities to official stock exchange listing and on information to be published on those securities, OJ L 184,
06.07.2001.
114

115. From an issuer’s point of view, ESBG members have not encountered significant problems
related to the passport. In this context, ESBG would like to point out CESR’s valuable
“Questions and Answers” tool, which delivers practical guidance on the application of
the provisions included in the Prospectus Directive.
Specific comments regarding the current review process
Regarding the current review process of the Directive91, the Commission is putting this The focus on reducing
exercise in the context of a broader exercise regarding the reduction of administrative the administrative burden
burden. ESBG welcomes the approach chosen. is welcome.
ESBG also supports many of the concrete proposals for changes included in the January
2009 consultation paper. In particular, it would be useful to adapt the definition of
qualified investors to the provisions included in the MiFID Directive92 and to delete
information requirements which duplicate those contained in the Transparency Directive.93
ESBG welcomes the Commission’s intention to harmonise the timeframe for the withdrawal
of an order.94 More reflection is necessary regarding related technical issues, such as the
impossibility of handling the withdrawal if the settlement has already taken place.
The Commission also tackles the issue of certain thresholds of the Directive. The limitation Additional issues should be
on the free determination of the home Member State for issues of non-equity securities tackled as part of the review
with a denomination below EUR 1,000 is rightly seen as a burdensome restriction, process.
which does not allow all issuers to select the most appropriate competent authority.95
ESBG agrees with this judgment, but in addition considers it necessary to revise another
threshold included in the Directive – the exemption from the obligation to issue a prospectus
for credit institutions where the total consideration is less than EUR 50 million.96
Practise has shown that not all small banks are able to benefit from this possibility and,
as a consequence often abstain from issuing securities which in return limits the offer on
the market. ESBG therefore proposes to raise the threshold of the total consideration of
the offer to EUR 500 million. Investor protection would not be affected by this measure,
as the exemption only applies to plain, non-derivative products. Corresponding deliberations
pertain to the threshold relating to disclosure requirements for small quoted companies.97
The present figure of EUR 2.5 million is unduly burdensome and accordingly the threshold
should be increased.
Furthermore it should be possible to update the registration document which forms a
part of a prospectus consisting of separate documents.98 This would enable the issuer to
provide all investors with a uniform, updated registration document.
90 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus
to be published when securities are offered to the public or admitted to trading and amending Directive
2001/34/EC, OJ L 345, 31.12.2003.
91 European Commission. 2009. Consultation on a draft proposal for a Directive of the European Parliament and
of the Council amending Directives 2003/71/EC on the prospectus to be published when securities are offered
to the public or admitted to trading and 2004/109/EC on the harmonisation of transparency requirements in
relation to information about issuers whose securities are admitted to trading on a regulated market.
92 Art. 2 (1) (e).
93 See in particular Art. 10.
94 Art. 16 (2).
95 Art. 2 (1) (m).
96 Art. 1 (2) (j).
97 Art. 1 (2) (h).
98 Art. 12 (1)-(2).
115

116. In addition it is necessary to make some clarifications in the Directive, for instance
regarding (a) the exact timing when the requirement to supplement a prospectus ends,99
(b) the use of the prospectus on subsequent distribution stages (retail cascade)100 and (c)
the exact timing when the issuer should be allowed to issue the security in the host
Member State.101
Finally, ESBG would welcome guidance by CESR in several areas, for instance regarding
which information may form part of the final terms and which information must be made
in the prospectus itself.102
5.3. Market Abuse Directive
Key messages
n ESBG members assess that the application of the Market Abuse Directive is functioning well.
n With a view towards the upcoming review, ESBG supports in particular the Commission’s preliminary views
regarding possible exemptions for disclosing inside information in the context of emergency measures and
regarding the reassessment of the rules on insider lists. Furthermore ESBG believes that the issue of reporting
of suspicious transactions needs to be analysed closely and might require revision.
Background
The Market Abuse Directive (2003/6/EC103) covers both insider dealing and market
manipulation. It reinforces market integrity in the securities field and establishes a strong
commitment to proper market transparency and equal treatment of market participants.
Transparency is seen as a prerequisite for trading for all economic actors in integrated
financial markets. The Market Abuse Directive applies to any financial instrument
admitted to trading on a regulated market in the EU, including primary markets.
ESBG views
ESBG members assess that the application of the Market Abuse Directive is functioning
well. In addition, they appreciate the valuable work by CESR, giving guidance on practical
details and thereby improving the convergent application of the Directive within the EU.
CESR issued in May 2009 its third set of guidance104, covering the areas of insider lists,
suspicious transaction reporting, stabilisation and buy-back programmes, rumours and
inside information.
99 Art. 16 (1)
100 Art. 3 (2)
101 Art. 18
102 Art. 5 (4)
103 Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing
and market manipulation (market abuse), OJ L 96, 12.04.2003.
104 Committee of European Securities Regulators. 2009. Guidelines on Market Abuse Directive Level 3 – Third
set of CESR guidance and information on the common operation of the Directive to the market, CESR/09-219,
15 May.
116

117. With a view towards the upcoming review of the Market Abuse Directive, ESBG welcomes ESBG would welcome
the general orientation of the Commission’s call for evidence105, focusing on a simplification less administrative burden,
of the Directive and on reducing its administrative burden. ESBG in particular agrees that stronger alignment of
the issuer may be exempted from disclosing inside information in the context of national implementations
emergency measures, while stressing that the situations in which the issuer’s financial and enhanced legal clarity.
stability is endangered need to be clarified. On another note ESBG highlights that it
supports a reassessment of the rules on insider lists with a view towards introducing
modifications to the duty to draw up and maintain insider lists; in this context, any
change which would lead to less administrative burden for the issuer, a stronger
alignment of national implementations and enhanced legal clarity would be welcomed.
Furthermore, ESBG asks for an analysis regarding the reporting of suspicious transactions.
ESBG refers to low figures of suspicious transactions reporting (according to our
calculations in 2007 less than 0.13 reports have been delivered per entity), while the costs
assumed by the entities are very high. Another argument for the revision of the provisions
on suspicious transaction is that there are significant interpretation problems with the
obligation. This is the case regarding both the meaning of “transaction” and “reasonable
suspects”. Uncertainties in these respects may easily entail that the obliged firms may
report more transactions than intended, thus creating excessive administrative burden.
5.4. Transparency Directive
Key messages
n ESBG members assess that the application of the Transparency Directive is functioning relatively well.
n With a view towards the revision of the Transparency Directive, there is scope for certain improvements,
which would lower the unnecessary burden, in particular for smaller banks.
Background
The Transparency Directive (2004/109/EC106) amends the Directive 2001/34/EC on the
harmonisation of transparency requirements in relation to information about issuers
whose securities are admitted to trading on a regulated market. It upgrades the
transparency requirements in relation to the content and dissemination of periodic and
ongoing information for securities issuers and investors acquiring or disposing of major
holdings in issuers whose shares are admitted to trading on a regulated market in the EU.
This includes in particular information on a company’s performance and financial position
as well as changes in major shareholdings.
105 European Commission. 2009. Call for evidence. Review of Directive 2003/6/EC on insider dealing and market
manipulation.
106 Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the
harmonisation of transparency requirements in relation to information about issuers whose securities are
admitted to trading on a regulated market and amending Directive 2001/34/EC, OJ L 390, 31.12.2004.
117

118. ESBG views
Based on the experience gained by ESBG members concerning the practical application
of the Directive, it can be concluded that it is functioning relatively well. This being said,
it would be worth revising some aspects of the Directive. We would mention especially
the following issues:
ESBG recommends n The rules on publication of major holdings are too formal.
a revision of the provisions n The aggregation rule in Article 10 causes a high administrative and financial burden,
on publication of major in particular for small banks. In many cases a subsidiary’s holdings and holding strategy
holdings and the are wholly independent from the parent company’s holding; against this background
aggregation rule. the aggregation rule should be more clearly specified so that aggregation is only
obligatory when it is relevant in practise.
More generally, ESBG members would welcome a similar approach to the one chosen for
the revision of the Prospectus Directive, thus also putting the revision of the Transparency
Directive in the context of the exercise of reduction of administrative burden.
118

119. 6. CAPITAL MARKETS II –
ASSET MANAGEMENT
AND INVESTMENT FUNDS
6.1. UCITS
Key messages
n ESBG welcomes the changes introduced by UCITS IV, in particular the introduction of the management
company passport.
n With view to future modifications regarding the definition of eligible assets, ESBG stresses the need to
preserve the spirit of UCITS as safe products for retail investors.
n The responsibilities of the depositaries are an issue which requires further attention.
Background
UCITS (Undertakings for Collective Investment in Transferable Securities) are specially
constituted collective investment portfolios exclusively dedicated to investing funds
brought by investors. The importance of UCITS is demonstrated by the volume of the
sales; in 2007 the value of all UCITS was EUR 6,160 billion in total net assets – a growth
by almost 75% since 2000.107 In addition ‘UCITS’ has been recognized as a global brand.
UCITS were first created with the 1985 UCITS I Directive108, which established the first
European retail financial product. UCITS I sets common rules for the authorization,
supervision, structure and activities of collective investment undertakings situated in the
Member States and the information they must publish. UCITS I was limited to open-
ended funds investing in transferable securities, complying with the principle of risk
spreading. The scope of UCITS funds has since then been extended several times,
whereas the guiding principle has always remained a high level of investor protection.
The Directive was amended by two Directives in 2001 (UCITS III109), notably concerning
the areas of eligible assets, management companies and simplified prospectuses.
However, the Commission stated in its 2005 Green Paper that the initial aim of an internal
market had not yet been fully reached, with a relative low number of cross-border UCITS
and sub-optimal fund sizes. In addition, the introduced changes did not work in an
optimal manner. In particular UCITS III introduced the concept of the management
company passport which did not materialize in practice.
107 Efama. 2008. Efama Fact Book. Trend in European Investment Funds 6th edition
108 Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in transferable securities (UCITS),
OJ L 375, 31.12.1985.
109 Directive 2001/108/EC of the European Parliament and of the Council of 21 January 2002 amending Council
Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to
undertakings for collective investment in transferable securities (UCITS), with regard to investments of UCITS,
OJ L 41, 13.02.2002 and Directive 2001/107/EC of the European Parliament and of the Council of 21 January
2002 amending Council Directive 85/611/EEC on the coordination of laws, regulations and administrative
provisions relating to undertakings for collective investment in transferable securities (UCITS), with a view to
regulating management companies and simplified prospectuses, OJ L 41, 13.02.2002.
119

120. In June 2009 the ‘UCITS IV’ Directive110 was adopted. UCITS IV contains provisions
regarding the product passport, which basically permits the distribution of a product
which has been registered in one of the EU Member States. Once the registration is valid,
the other supervisory authorities just need to be notified, whereas in the past often a
re-authorisation procedure had to be undertaken.111 UCITS IV also makes the
management company passport work. The management company passport allows
management companies to provide their services all over Europe.112 While the relevant
2001 Directive had introduced the principle but failed to put the concept into practise,
this passport has now become a reality.113 Furthermore UCITS IV replaces the simplified
prospectus with a new concept, called Key Investor Information, the content of which is
harmonised, short and simple.114 CESR is currently preparing its advice regarding the
implementing details for Key Investor Information, as well as the other areas covered by
the revision of the Directive, which it will publish in October 2009. Finally, UCITS IV allows
fund mergers both on a domestic and on a cross-border basis. It also allows funds to be
related via a master-feeder structure (i.e. a feeder UCITS has to invest at least 85% of
its assets in one single master UCITS).115 Both measures will result in economies of scale
and lower costs.
ESBG views
UCITS IV is expected to bring With UCITS IV a solid basis for the internal market for UCITS has finally been created.
considerable improvements. The concepts of product passport and management company passport have been given
a clear legal basis. Former weak points regarding the notification procedure for the
products have now been eliminated. In particular this procedure will now be carried out
in considerably less time. ESBG also considers it of high importance that UCITS IV makes
the management company passport work while simultaneously maintaining high
standards of investor protection and of supervision. In addition the relationship between
the management company and the depositary has been clarified. In light of the changes
introduced by UCITS IV in relation to fund mergers, it needs to be guaranteed that an
accompanying framework concerning tax neutrality is created soon. ESBG fully supports
the European Parliament’s request for a Directive by the end of 2010.
Looking ahead, the question of which assets can be eligible as UCITS will be of crucial
Looking ahead, the question importance. No changes in this field have been introduced with UCITS IV, as the new
of which assets are eligible provisions were adopted in 2007 (i.e. in Directive 2007/16/EC116, which adapted the
as UCITS will be crucial. eligible assets to market developments). Changes to this Directive will become necessary
again in the future; the speed of the legislative process for the adoption of the Directive
mentioned above can serve as a good example. All future revisions should preserve the
spirit of UCITS, being known as a safe product for retail investors.
110 Directive 2009/…/EC of the European Parliament and of the Council of on the coordination of laws,
regulations and administrative provisions relating to undertakings for collective investment in transferable
securities (UCITS), (recast), 2008/0153 (COD), 19.06.2009, awaiting publication in the Official Journal.
111 Art. 91-96
112 Introduction of the principal in Art. 5(3), further provisions in particular in Art. 13-23
113 Directive 2001/107/EC, in particular Art. 5 (1)
114 Art. 78-82
115 Mergers Art. 37-48, master-feeder Art. 58-65
116 Commission Directive 2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the
coordination of laws, regulations and administrative provisions relating to undertakings for collective investment
in transferable securities (UCITS) as regards the clarification of certain definitions, OJ L 79, 20.03.2007.
120

121. Looking further ahead, discussions will also continue regarding the question of whether Tasks and responsibilities
a depositary passport should be introduced. Such a passport would enable depositaries of depositaries should be
to provide their services all over Europe. However, the possible introduction of a further aligned.
depositary passport would certainly raise supervisory concerns. As such, a detailed
assessment would need to be conducted; CESR could play an important role in this
process. Furthermore, and even prior to such an assessment, the tasks and responsibilities
of depositaries would have to be aligned. The Madoff collapse has brought a new spotlight
on the question of tasks, responsibilities and liability of depositaries, and confirmed the
existence of divergences in this area. The Commission envisages a clarification of these
aspects117, which would constitute a useful step toward enhanced harmonization and
investor protection in this area.
6.2. Alternative Investment Fund Managers
Key messages
n ESBG welcomes the discussion on the topic of alternative investment funds, in particular hedge funds.
n After a preliminary assessment of the Commission proposal, ESBG is concerned about a number of vague
elements, in particular regarding the scope of “non-UCITS”.
n Furthermore ESBG is concerned about the heavy burden put on the depositary banks.
Background
Until autumn 2008 the Commission considered that hedge funds did not pose any
specific risk to Europe’s financial stability and that therefore no particular regulatory
action on the EU level was necessary. However, later the Commission expressed the view
that the recent market convulsions had revealed that hedge funds may play a pro-cyclical
role that might indeed create risks to the stability of the financial system and therefore
warrant closer prudential oversight.
On 30 April 2009 the Commission issued its proposal for a Directive on Alternative
Investment Fund (AIF) Managers118 – capturing all non-UCITS funds. The Commission
proposes that, above a certain threshold119, all managers of non-UCITS funds shall be
subject to an authorisation procedure and shall have to fulfill further requirements
(e.g. capital requirements, organizational requirements, transparency requirements).
On this basis, the manager will be entitled to market AIFs to professional investors all over
Europe. Furthermore, the proposal foresees that managers will have to fulfill additional
requirements when they employ certain techniques or strategies, notably management of
leveraged AIFs or management of AIFs which acquire controlling influence in companies
(excluding SMEs).
117 European Commission. 2009. Working Document of the Commission Services (DG Markt). Consultation Paper
on the UCITS Depositary Function.
118 European Commission. 2009. Proposal for a Directive of the European Parliament and of the Council on
Alternative Investment Fund Managers and amending Directives 2004/39/EC and 2009/…/EC [COM(2009)
207 final], SEC(2009)576 SEC(2009)577, 30 April.
119 The Directive will not apply to AIFM managing portfolios of AIF with less than 100m EUR of assets or of less
than 500m EUR, in case of AIFM managing only AIF which are not leveraged and which do not grant
investors redemption rights during a period of five years following the date of constitution of each AIF.
121

122. ESBG views
From the beginning of the discussions ESBG welcomed the Commission’s decision to
tackle the issue of hedge funds. ESBG recommended coordination at an international
level (through the International Organisation of Securities Commissions / IOSCO) while
recognizing the necessity for a leading role of the EU.
A number of issues still With regard to the Commission proposal for a Directive, ESBG notes that the focus has
need to be discussed been expanded to cover all non-UCITS funds. At the same time, the Commission is
and reconsidered. moving away from the traditional products approach and puts the focus on the fund
managers. ESBG regrets this policy change, since the product approach has proved
successful in many cases.
ESBG is currently analyzing the impact of the proposal to significantly broaden scope by
covering all “non-UCITS”. Also to be looked at are the responsibilities and liabilities of the
depositary; in this regard clarification and reconsideration might be necessary.
Finally, ESBG reflects upon the implications for managers selling products to retail and
professional clients, such as a double or triple authorization and compliance under UCITS,
AIFM and eventually national rules.
Referring to the discussions held in the past on open-ended real estate funds (OEREFs)120,
ESBG notes that the proposal for a Directive on AIFM includes such products, while
limiting their cross-border sale to professional investors. This approach conflicts to some
extent with the Expert Group recommendation to create an EU framework for OEREFs
and to facilitate their cross-border distribution to retail investors. ESBG is of the opinion
that it would be worth giving renewed consideration to this recommendation at a later
point in time.
6.3. Packaged retail investment products
Key messages
n ESBG is open for discussions on how a framework for all packaged retail investment products could work
in practice.
n The discussions need in particular to focus on the questions of scope (i.e. which products shall be captured)
and degree of flexibility (i.e. how rules can be sufficiently flexible to be suitable to the different products).
Background
Since 2007 the European Commission has been analysing the impact of the fragmented
regulatory landscape for retail investment products on the protection of retail investors
and on the level-playing field at the EU level between the different product categories.
120 From June 2007 to March 2008 an expert group set up by the Commission assessed the opportunity of a
European approach for OEREF. The expert group recommended the creation of an EU regime for OEREF in
order to facilitate their cross-border offer to retail consumers. Looking at the possible ways to achieve such an EU
regime, the expert group recommended to either modify the UCITS Directive or to create a standalone Directive.
122

123. In April 2009 the Commission released its Communication on this issue121, opting for a
horizontal approach to both mandatory disclosures and selling practices for all packaged
retail investment products. Based on the Commission’s Communication ‘packaged retail
investment products’ include (for example) investment or mutual funds, unit-linked life
insurance policies, retail structured securities and structured term deposits (the list of
examples is neither static nor exhaustive). The Commission’s plan is to use UCITS Key
Investor Disclosure and MiFID as benchmarks for the areas of disclosure and selling
practises respectively.
ESBG views
During the discussions taking course in 2007 ESBG stressed that its member banks could
not identify any sign of market failure and that the substitutability among certain
products effectively depends on the clients’ needs and objectives. Since then discussions
have progressed, with the focus shifting from substitutability to a more generalized
approach on retail investment products.
Given that the Commission is expected to present detailed orientations on the form and Legal clarity needs to be
content of future legislative measures by end of 2009, ESBG’s comments are at this point provided.
only preliminary. ESBG is open for a dialogue on how to improve selling and disclosure
practices for all packaged retail investment products. In this context, it is crucial that the
term “packaged retail investment product” be clearly defined. Only on that basis will it
be possible to find a framework which can capture all these products. In any case,
the rules need to be sufficiently flexible to be suitable to all concerned products, without
harming functioning business activities. A good implementation of a future framework
could provide legal certainty, clear selling and distribution practices and promotion of a
high level of investor protection.
121 European Commission. 2009. Communication from the Commission to the European Parliament and
the Council. Packaged Retail Investment Products [COM(2009) 204 final], SEC(2009) 556 SEC(2009) 557,
30 April.
123

124. 124

125. 7. CONSUMER POLICY IN THE AREA
OF RETAIL FINANCIAL SERVICES
Setting the scene: the European approach to consumer protection
In recent years, European policy makers have shown a distinct desire to put the consumer
at the centre of designated policy initiatives. Consumer protection has become a
cornerstone of European retail financial services policy. The initiatives and proposals by
the European Commission in this area are focused on assisting consumers in making
good financial decisions, giving them the freedom to select the products that best suit
their needs, and ensuring that they are offered a high level of protection.
In addition, the Commission believes that although advances in technology make it much
easier to buy financial services across borders, consumers are still reluctant to purchase
financial products from countries other than their own.122 Recent studies 123 have shown
that this reluctance is mainly due to language and cultural barriers, and to a lack of
confidence in foreign financial regimes. In this respect, the Commission’s initiatives seek
to raise consumer confidence through information and education and to increase
competition in the Internal Market.
As described in Part 2 of this report, despite the new opportunities for businesses and
consumers through the technological advances like the Internet, most people still prefer
face-to-face communication when it comes to financial service providers. Retail banking
services are in principal locally orientated. Moreover, as decentralised financial institutions
with local and regional ties and a wide-stretching network of branches, savings banks
have kept a focus on proximity banking and thus often hold a long-standing relationship
with their clients.
Hence, the European consumer policy in retail financial services should focus on financial
education and efficient information to foster consumer confidence in the short term and
on the convergence in consumer protection at the EU level in the long term.
Consumer confidence
Consumer confidence and the consumers’ ability to decide upon comprehensive information
are key for any commercial transaction. These issues are paramount when it comes to
financial services. Nowadays, European consumers are living a moment of weak
confidence due to turbulence in the global financial markets. Moreover, in times of
globalization new opportunities in terms of new financial products, new instruments and
new technologies became available posing new challenges for the consumers such as
understanding the risks associated with complex products. This is the main lesson learnt
as the current crisis in the banking sector has led people to question the stability and
reliability of the banking sector.
122 European Commission. 2007. Green Paper on Retail Financial Services [COM(2007) 226 final, 30 April,
p. 6; European Commission.2008. Special Eurobarometer 298. Consumer Protection in the Internal Market,
Fieldwork February – March 2008. Publication October 2008, p. 120.
123 European Commission.2008. Special Eurobarometer 298. Consumer Protection in the Internal Market,
Fieldwork February – March 2008. Publication October 2008, p.125-126.
125

126. Beyond that, consumers’ lack of confidence in financial services is often caused by
detrimental personal, family and friends’ experiences as well as negative media releases.
This explains why financial firms need to be aware that dissatisfaction with one part of
the industry can taint consumers’ views of the industry as a whole, whether or not it is
justified.
A permanent dialogue between the credit industry and consumer organisations is
necessary in order to resolve consumer complaints, address consumer demand for
information and advice in a satisfactory way and regain consumer confidence. Savings
banks serve this demand as they are institutions which are close to consumers and have
a solid and long-term business philosophy.
Information and advice
Information and advice are two of the most important topics in the relationship between
consumers and banks. The financial markets depend on the ability of consumers to play their
role by making customised choices between different products which are based on the
information acquired beforehand. Thus, it is important for the banking industry that consumers
are conscious of their own financial needs and abilities and decide based upon this.
Regarding information, in retail financial services the distinction between pre-contractual
and contractual information – depending on the phase of the financial transaction – has
to be made. The quality and quantity of the types of information provided to consumers
raise additional questions. The information which financial institutions are required to
provide to consumers should be strictly limited to that which the consumer actually reads
and needs in order to understand the product. So far, this limitation of information
requirements to the real needs of consumers has not been achieved, and a rigorous
assessment is therefore necessary. Thus, ESBG members strongly encourage focusing on
increasing the quality of information rather than the quantity. To avoid information
overload or possible information gaps, the approach towards consumer information must be
coherent in all EU legislation and the political objectives have to be coordinated at all times.
Advice can not be Advice is another important factor in the relationship between consumers and banks but
standardised and always has to be clearly distinguished from information. While financial institutions should fully
needs to be determined on and appropriately inform consumers, the final decision to opt for a specific financial
a case-by-case basis. product should be made by that consumer, based on his or her own needs and
circumstances. Providing professional advice is a separate service and should remain at
the disposal of the consumer. Moreover, advice cannot be standardised and always needs
to be determined on a case-by-case basis. The introduction of an obligation to advise
would be detrimental for those consumers who would have to pay for a service which
they do not need and/or did not request. Furthermore, the advice given must be objective
and based on the consumer's profile considering the complexity of the offered products
and the risks associated with them.
120 From June 2007 to March 2008 an expert group set up by the Commission assessed the opportunity of a
European approach for OEREF. The expert group recommended the creation of an EU regime for OEREF in
order to facilitate their cross-border offer to retail consumers. Looking at the possible ways to achieve such an EU
regime, the expert group recommended to either modify the UCITS Directive or to create a standalone Directive.
126

127. 7.1. Consumer credit
Key messages
n Various concerns of the financial industry regarding the provisions for over-drafting, pre-contractual
information, the definition of the annual percentage rate of charge, early repayment and the right of
withdrawal have not been addressed in the Consumer Credit Directive.
n The current regime of the Consumer Credit Directive prolongs the handling of consumer credit, imposes
additional administrative burdens on financial institutions, increases their costs and as a result causes a delay
in the implementation at the Member State level.
Background
After more than six years of negotiations, the Council approved the changes made by the
European Parliament and enabled the final adoption of the Consumer Credit Directive
(CCD)124 in April 2008. An impact assessment on the CDD was not conducted by the
Commission. Although at a later stage an impact assessment was carried out upon
request of the European Parliament, this was not taken into account in the discussions at
the Council level.
The previous Directive (87/102/EC)125 in this area was based on minimum harmonisation.
Most Member States have gone beyond the requirements and created a patchwork of
different rules across the 27 EU Member States. The new Directive (2008/48/EC) on
Consumer Credit,126 with the objective of full harmonisation, aims to grant consumers
an appropriate degree of protection when taking out consumer credit. The regulation
was designed to ensure this objective by providing consumers with standard and
comparable information on advertising, adequate pre-contractual information,
information on an annual percentage rate of charge (APRC) and generally high quality
contractual information.
The Directive also introduced two fundamental rights for consumers. First, the right of
withdrawal allows consumers to withdraw within a period of 14 calendar days from the
credit without giving any reason and without any charge.127 Second, the CCD confirms
the right to repay early at any time.128 Standards are set on the compensation creditors
are entitled to claim in case of an early repayment129 in order to make it easier for consumers
to refinance their loan. This also lowers market entry barriers for lending institutions.
124 Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers,
OJ L133, 23.04.2008.
125 Council Directive 87/102/EEC for the approximation of the laws, regulations and administrative provisions of
the Member States concerning consumer credit, OJ 042 , 12.02.1987, see p. 48 – 53.
126 Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers,
OJ L133, 23.04.2008. See for specific details Recital 9, cf. insofar as it contains harmonised provisions.
127 Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers,
OJ L133, 23.04.2008. See for specific details Article 14.
128 Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers,
OJ L133, 23.04.2008. See for specific details Article 16.
129 Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers,
OJ L133, 23.04.2008. See for specific details Article 16(2).
127

128. During the implementation and transposition process of the CCD in the Member States,
the banking industry raised general concerns on the implementation of the CCD (e.g.
adequate time for lenders to implement technical provisions, etc.) and specific concerns
related to the interpretation of a selection of provisions of the Directive (e.g. definition of
non-discriminatory access to credit databases, clarifications on advertising provisions, etc.).
In this regard, the European Commission Directorate General Health and Consumers
(DG SANCO) commissioned several studies.130 In particular, the study on the calculation
of APRC launched in April 2009 should be highlighted as giving concrete examples and
a calculation formula for a harmonised APRC.131
ESBG views
During the discussions held in past years, ESBG presented proposals to address the
problems identified in the revised Consumer Credit Directive, such as the provisions
relating to overdrafts, pre-contractual information, the definition of APRC, early repayment
and the right of withdrawal. Another controversial issue was the lack of an impact
assessment, for which ESBG has continuously advocated.
Consumer Credit Directive While recognising the progress made with the revised CCD proposal compared to the
still needs clarifications. original proposal tabled by the Commission in 2002, ESBG believes that the implementation
of the Directive will be expensive and enormously slow down the handling of these types
of credits. Moreover, delays of implementation are expected, as certain areas still await
clarification including APRC, the notion of ‘adequate explanation’ in Article 5 (6)132 and
the definition of creditworthiness/ability to pay.
National transposition has In addition, some provisions leave flexibility to Member States. This means that the
to account for the specific industry will have had to commit to information technology changes without regulatory
needs of financial certainty. Therefore, it is of paramount importance that the national authorities take the
institutions. specific needs of the financial institutions into account when transposing the Directive
into national law.
Information requirements In more concrete terms, the treatment of pre-contractual information in Article 5 of the
in the Consumer Credit CCD will certainly be a major issue. Banks will have to extensively redraft information
Directive are by far sheets and brochures in order to adapt the existing credit forms to the new legal
too extensive. requirements. The implementation of the Directive confirms the concerns expressed
repeatedly during the adoption process that the information requirements are by far too
extensive and therefore not suitable to help consumers to understand the credit offer or
compare different offers.
New bureaucratic burden The new CCD provisions create an enormous bureaucratic burden for both credit
is created for credit institutions and consumers. Thus ESBG remains concerned about the ability of the
institutions and consumers. Directive to fulfil its objectives, namely to increase consumer confidence and consumer
credit activities in the EU.
130 The European Commission DG SANCO launched a study on the establishment of a benchmark on the
economic impact of the CCD on the functioning of the internal market in the consumer credit sector and on
the level of consumer protection. The final report is expected by the end of 2009.
131 A final report can be expected in the course of 2009.
132 Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers,
OJ L133, 23.04.2008. See for specific details Article 5(6).
128

129. 7.2. Mortgage credit
Key messages
n The initiatives of the Commission to assess possible future developments in the area of mortgage credit are
welcome steps forward.
n ESBG appreciates the current well-functioning self-binding European Standardised Information Sheet (ESIS)
and welcomes a revised version aligned with consumers’ needs.
n In future regulatory developments a narrow method of calculating the APRC specific to mortgage credit
should be favored.
n Early repayments should be a contractual option in all Member States.
n There is a need to adapt the recommendation on property valuation and use of valuation methodologies to
national market specificities.
n A legal obligation to consult credit registers will raise key issues, such as liability for wrong information,
sufficiency and appropriateness of contents of credit registers, and different negative or positive criteria of
credit registers.
n Responsible lending and borrowing should achieve a fair spread of responsibilities between consumers and
lending institutions.
Background
In recent years, discussions have been ongoing to address some aspects of mortgage
credit at the European level. In March 2003, the European Commission set up a Forum
Group on Mortgage Credit with a mandate to identify the barriers to the functioning of
the Internal Market for mortgage credit.133 In parallel, the Commission launched a
research project on the costs and benefits of further integration of the EU mortgage
credit market.
In early 2005, the Commission established the Government Expert Group on Mortgage
Credit to provide advice on its mortgage credit policy. In the same year, the Commission
published its Green Paper on Mortgage Credit134 launching a consultation process.
After the Green Paper consultation, in 2006 the Commission decided to create two new
ad-hoc working groups. One of these working groups focused on funding – the
Mortgage Funding Expert Group (MFEG)135 – and the other focused on consumer issues
– the Mortgage Industry and Consumer Expert Group (MICEG).136 Consumers and
industry representatives alike considered the dialogue a constructive and positive debate.
133 For more information see European Commission. 2004. The Integration of EU Mortgage Credit Markets.
Report by the Forum Group on Mortgage Credit. [http://ec.europa.eu/internal_market/finservices-retail/
docs/home-loans/2004-report-integration_en.pdf ]. Accessed June 2009.
134 European Commission. 2005. Green Paper on Mortgage Credit in the EU [COM (2005) 327 final], 19.7.2005.
135 For more information see European Commission. 2006. Terms of References. Mortgage Funding Expert Group.
[http://ec.europa.eu/internal_market/finservices-retail/docs/home-loans/mfeg/tor-en.pdf]. Accessed June 2009.
136 For more information see European Commission. 2006. Terms of References. Mortgage Industry and Consumer
Expert Group. [http://ec.europa.eu/internal_market/finservices-retail/docs/home-loans/miceg/tor-en.pdf].
Accessed June 2009.
129

130. Both reports of the Expert Groups were published at the beginning of 2007 and
considered by the European Commission when drafting its White Paper on Mortgage
Credit137 launched in December 2007. The White Paper did not propose any concrete
legislative measure but defined four objectives in the area of mortgage credit:
1) Obstacles to cross-border provision of both funding and supply of mortgage credit
have to be reduced.
2) Product diversity has to increase, in part also based on greater cross-border supply.
3) Consumer confidence should be improved.
4) Consumer mobility needs to be promoted in order to facilitate the switching of
mortgage lenders and encourage customers to actively search for the best offers
outside local markets.
In order to achieve those objectives, the Commission announced several initiatives and in
2008 launched studies in the following areas (i) the revision of the current European
Standardised Information Sheet (ESIS), (ii) a study on the costs and benefits of the
different policy options for mortgage, (iii) credit credit intermediaries, (iv) land
registration, property valuation and foreclosure procedures, (v) non-credit institutions and
(vi) equity release schemes. All the studies mentioned are being carried out by external
consultancies and the results are due to be published in 2009.
For the revision of the ESIS, the Commission is carrying out a consumer testing of the
current ESIS in order to check the effectiveness of different options in conveying the
intended message to consumers when providing pre-contractual information. This format
provides pre-contractual information to consumers as established by the Code of
Conduct on home loans agreed by the industry in 2001.138 The Commission believes that
there are some inefficiencies in the current application of the ESIS. Against this
background, the Commission mentioned its considerations to keep either the current
non-binding form of the ESIS, via the Code of Conduct on home loans, or to convert it
into binding legislation.
Certain policy areas of the study on a revised ESIS have been supplementary addressed in
the Commission study on costs and benefits of different policy options for mortgage
credit. The latter study analyses the current legal and regulatory requirements in four
policy areas, such as pre-contractual information, APRC, responsible lending and
early repayment.139
Through the study on credit intermediaries, the Commission is gathering information
on whether the current legislative framework is sufficient and if consumers face any
particular problems in dealing with credit intermediaries, especially on a cross-border basis.
The final report of the contractor, released in May 2009, stated that credit intermediaries
are beneficial to consumers and lenders. Following the report, the regulatory framework
for credit intermediaries varies significantly by Member State and credit product.
However, the report has given credit intermediaries only a limited role to overcome
potential barriers in cross-border trade of retail financial services.140
137 European Commission. 2007. White paper on the integration of EU mortgage credit markets [COM(2007)
807 final], SEC(2007) 1683 SEC(2007) 1684, 18 December.
138 Commission Recommendation 2001/193/EC of 1 March 2001 on pre-contractual information to be given to
consumers by lenders offering home loans, C(2001) 477), OJ L 069, 10.03.2001.
139 For more information see European Commission. 2009. Mortgage Credit. Studies. Brussels
[http://ec.europa.eu/internal_market/finservices-retail/credit/mortgage_en.htm#studies]. Accessed June 2009.
140 For more information see European Commission. 2009. DG Internal Market and Services Study on Credit
Intermediaries in the Internal Market. Final Report by Europe Economics. [http://ec.europa.eu/internal_
market/finservices-retail/docs/credit/credit_intermediaries_report_en.pdf]. Accessed June 2009.
130

131. With regards to the study on land registration, property valuation and foreclosure
procedures, in 2008 the Commission issued a Draft Recommendation in order to reduce
time for foreclosure and registration procedures, to facilitate the use of foreign valuation
reports, and to promote the development and use of reliable valuation standards.141
Aiming to review the role and regulation of non-credit institutions in the European
mortgage markets, the respective study assesses whether appropriate action at the
Community level is needed.142
The study on equity release schemes provides an overview of different equity release
schemes currently available across the Member States. However, it does not reach any
policy conclusions in its final report.143
Another Commission intention in the area of mortgage credit was to identify any obstacles
to the access to and exchange of credit data for the development of cross-border
mortgage credits. The Commission was seeking advice on how to address these whilst
ensuring a high level of consumer protection. Therefore, it established an Expert Group
on Credit Histories in 2008.144 The Expert Group’s final report was published in June 2009
and the Commission is consulting the financial industry before drawing any conclusions.
At the beginning of March 2009, the Commission published its Communication on
“Driving European Recovery”145 announcing the release of a package on responsible
lending and borrowing in autumn 2009. This initiative has a broad approach and
therefore, all studies conducted so far will most likely feed into the package on
responsible lending and borrowing in autumn 2009. On 15 June 2009, the Commission
allowed a first look at the potential content through its consultation on “Responsible
lending and borrowing in the EU”. Building on previous consultations, studies and policy
developments especially in the area of mortgage credit, the aim of the consultation is to
gather information on outstanding issues and to deepen the Commission services’
understanding. The Commission is seeking information on business practices prior to and
in the context of lending transactions, on responsible borrowing, and on credit
intermediaries. In more detail, the consultation addresses issues of advertising and
marketing requirements, pre-contractual information, risk guidance, product suitability,
creditworthiness checks, advice standards and credit intermediaries.
ESBG views
The approach taken by the Commission to assess open questions and possible future
developments via impact assessments and consultation is a clear commitment to the
Better Regulation principle. Another achievement is the dialogue through the established
working groups like the Mortgage Industry and Consumer Expert Group (MICEG) and
Mortgage Funding Expert Group (MFEG), which could serve as a precedent to organise
more direct open dialogues between consumers and industry representatives.
141 European Commission. 2007. White paper on the integration of EU mortgage credit markets [COM(2007)
807 final], SEC(2007) 1683 SEC(2007) 1684, 18 December, p. 8.
142 For more information see European Commission. 2009. Mortgage Credit. Archives. Brussels [http://ec.europa.eu/
internal_market/finservices-retail/credit/mortgage_en.htm#archives]. Accessed June 2009.
143 For more information see European Commission. 2009. Study on Equity Release Schemes in the EU. Part 1:
General Report. By Institut für Finanazdienstleistungen e.V. [http://ec.europa.eu/internal_market/
finservices-retail/docs/credit/equity_release_part1_en.pdf]. Accessed June 2009.
144 Commission Decision 2008/542/EC of 13 June 2008 setting up an Expert Group on Credit Histories, OJ L 173,
3.7.2008, p. 22–24.
145 European Commission. 2009. Communication for the Spring European Council. Driving European recovery.
Volume 1 [COM (2009) 114 final], 4.3.2009; European Commission. 2009. Communication for the Spring
European Council. Driving European recovery. Volume 2: Annexes [COM (2009) 114 final], 4.3.2009.
131

132. Furthermore, any action at the European level in the area of mortgages has to demonstrate
the potential benefits for both consumers and the industry alike, – in particular in light of
the current crisis.
The Code of Conduct should At present, one of ESBG’s major concerns is the revision of the European Standardised
maintain its voluntary nature Information Sheet (ESIS). The financial industry fears that with the revision of the ESIS, the
as a self-regulatory measure. Commission has in mind to introduce mandatory rules such as regulation in the form of
a Directive following the model of the CCD (Consumer Credit Directive – see Part 3,
Section 2.1). To emphasise the well-functioning of current self-regulatory regime,
the financial industry already provided the Commission with a 3rd Progress report146 on
the implementation of the Code of Conduct. In particular, the situation in the UK and
Spain147 has to be highlighted where pre-contractual information is also provided – though
not using the ESIS format. The industry is also in favour of revising and updating the Code
of Conduct. However, it should maintain its voluntary nature as a self-regulatory measure.
ESBG favours a narrow In addition to the issue of pre-contractual information, ESBG members are also concerned
definition of the APRC about the method of calculating the Annual Percentage Rate of Charge (APRC). ESBG
specific to favours a narrow definition specific to mortgage credit. A common Annual Percentage
mortgage credit. Rate of Charge with the Consumer Credit Directive could have been envisaged, but not
on the basis of the broad APRC definition recently adopted in the Consumer Credit
Directive, because this would not deliver comparability for mortgage products.
Early repayment should be Early repayment should be a contractual option legally in force in all Member States. If
a contractual option. consumers do not exercise this option, they should not be obliged to pay for the costs
involved in an anticipatory manner.
Requirements for credit With regard to the study on credit intermediaries, EU Member States do not have the
intermediaries should be in same rules and standards regarding the regulatory regime applicable to these entities.
line with those for credit If the Commission concludes from the final report of the study that there are insufficient
providers. controls in place for credit intermediation across the EU, ESBG members support the
introduction of EU regulation in this field in order to bring the requirements for credit
intermediaries in line with those for credit providers.
A single EU standard for Regarding property valuation, the industry welcomes the focus of the Commission
valuation methodologies Recommendation on facilitating the use of foreign valuation reports and promoting the
neglects national, regional & development and use of reliable valuation standards. In this context, valuation
local market specificities. methodologies should always reflect national, regional and even local market specificities.
As such one single EU standard for valuation methodologies would be inappropriate.
The Commission Recommendation is an appreciated non-binding, flexible tool which is
the best-suited instrument to drive further convergence in the areas in focus.
146 For more information see European Commission. 2009. Code of Conduct. Brussels [http://ec.europa.eu/
internal_market/finservices-retail/home-loans/code_en.htm]. Accessed June 2009.
147 The Code of Conduct on home loans was not signed by Spain.
132

133. On access to credit registers, a legal obligation to consult credit registers is not A legal obligation
acceptable. They often do not deliver the necessary information and questions on liability to consult credit registers
for wrong information remain unresolved. Also, harmonisation of negative and/or is not acceptable.
positive criteria is neither desirable nor feasible at this stage. Compulsory consultation of
credit registers would not improve the correct assessment of the consumers’
creditworthiness. At the same time, there should be no mandatory obligation to inform
the consumer about the outcome of the register consultation in the context of mortgage
credit, as this could result in abuse. The consumer should, however, be provided with the
information upon request.
In principle, it is promising that the Commission is approaching lenders and borrowers at The Commisision’s definition
the same time as in its consultation “Responsible lending and borrowing in the EU”. of responsible lending
Moreover, the Commission’s view that credit products should be appropriate to represents already good
consumers’ needs and tailored to their ability to repay makes sense and represents banking practice in Europe.
already good banking practice in Europe. Regarding the concept of “responsible lending”
the principle of assessing creditworthiness is already an obligation with which lenders
comply under supervision rules, namely the Capital Requirements Directive (CRD).148
Mixing supervision obligations with contract law and civil liability would constitute a
systemic break. On top of existing CRD obligations, a legal obligation to assess
creditworthiness would not remedy legal uncertainty and would exponentially increase
litigation. Reference to good banking practice would enhance certainty.
The Commission’s perception on responsible borrowing is highly appreciated – recognizing Responsible borrowing by
that consumers have a responsibility to inform themselves about offered products, consumers is vital.
provide relevant, complete and accurate information on their financial situation to lenders
and take their personal as well as financial circumstances into account when making
their decision.
In general, responsible lending and borrowing should achieve a fair spread of
responsibilities between consumers and lending institutions.
7.3. Distance marketing of consumer financial services
Key messages
n The consumers’ preference of “face-to-face contact” offered by local providers is essential for the purchase of
financial products.
n The Directive 2002/65/EC for Distance Marketing of Consumer Financial Services contains unclear definitions
failing to match with current banking practices.
n The extensive nature of the information requirements in Article 3 represents a bureaucratic burden.
n The delay of the period for withdrawal, if information obligations have not been fulfilled, and the possibility
of a timely unlimited right of withdrawal in Article 6 could result in legal uncertainty, unnecessary costs and
additional burdens on consumers and banks.
n The Directive is not effective at encouraging consumers to buy financial services cross-border.
148 Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers, OJ
L133, 23.04.2008. See for specific details p.1.
133

134. Background
In order to encourage consumers to purchase financial services via new technologies,
such as internet or phone, the Commission issued regulation for these distance marketing
techniques. Aiming to enhance internet transactions of financial services across borders,
the Directive 2002/65/EC for Distance Marketing of Consumer Financial Services,149 in
force since 9 October 2002, is covering contracts for retail financial services which are
negotiated at a distance.150 The Directive had to be transposed by 9 October 2004 at the
latest and provides consumer protection provisions for financial services such as (i) right
of reflection, (ii) right of withdrawal and reimbursement, and (iii) the requirement to
provide contractual terms in writing beforehand.
On 6 April 2006, the Commission launched a Communication151 informing the European
Parliament and the Council that the implementation of the Directive had been delayed in
many Member States. As a result, a review of the application and operation of the
transposed provisions in the Member States, as foreseen by Art. 20 of the Directive, could
not be carried out. In March 2007, DG SANCO disclosed its intention to start the revision
of the Directive through the organisation of workshops and studies on its positive and/or
negative impacts. Given the delay and difficulties of the Directive’s transposition,
the Commission launched two studies on the functioning of the Directive, addressing the
legal as well as the economic impact. Both studies will be used to produce a comprehensive
Commission review of the implementation of the Directive over the course of 2009.
ESBG views
Consumers prefer ESBG generally supports the efforts to enhance the functioning of the internal market for
“face-to-face contact” consumer activities. Nevertheless, for an enhanced purchase of financial products
offered by local providers via distance communication tools the consumers’ preference of “face-to-face contact”
over distance marketing. offered by local providers is a key issue.
Some definitions In addition, ESBG has identified some priorities with regards to the implementation of the
remain unclear and fail to Distance Marketing of Financial Services Directive. Some definitions remain unclear and
take into account current fail to take into account current banking practices. Moreover, inconsistencies arise
banking practices. between Directive 2002/65/EC on Distance Marketing of Consumer Financial Services and
Directive 1997/7/EC on Distance Selling (e.g. as concerns the right of withdrawal and the
provision of information). Another issue is the extensive nature of the information
requirements in Art. 3 of the Directive. In Art. 6 of the Directive, the delay of the period
for withdrawal asserts that if the information obligations of the financial service provider
have not been duly fulfilled or in due time the consumer’s right of withdrawal changes
to be unlimited in time. This rule could result in legal uncertainty, unnecessary costs and
additional burdens on consumers and banks.
149 Directive 2002/65/EC of the European Parliament and the Council of 23 September 2002 concerning the
distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives
97/7/EC and 98/27/EC, OJ 271, 9.10.2002. See for specific details p.16.
150 Directive 2002/65/EC is complementary to the former Directive 1997/7/EC, which did not cover financial
services. For more information see Directive 1997/7/EC of the European Parliament and the Council of
20 May 1997 on the protection of consumers in respect of distance contracts, OJ L 144, 4.6.1997. See for
specific details p. 19.
151 European Commission. 2006. Communication from the Commission. Review of Directive 2002/65 of the
European Parliament and the Council of 23 September 2002 on the distance marketing of consumer financial
services [COM (2006) 161 final], 6.4.2006.
134

135. Finally, the anti-money laundering legislation constitutes a barrier to all forms of distance
marketing since it is very difficult to comply with the legislation without some face-to-face
interaction with the customer – especially when conducting distance marketing cross-border.
Overall, the very formal and overall burdensome provisions for distance marketing do not
encourage consumers to buy financial services via distance communication tools.
7.4. Consumer redress
Key messages
n ESBG supports the Commission’s initiative to reinforce the provisions of effective and efficient dispute
resolution and redress mechanisms for consumers.
n There is a need for the further assessment of existing redress and alternative dispute resolution systems at
Member State level.
n There is a lack of a legal basis and a need to comply with the subsidiarity principle for further actions in this field.
n In case of EU action, the correct balance needs to be struck between consumer rights and avoiding a US-style
litigation culture.
n With regard to the experience in practice of its members, ESBG strongly favours out-of-court settlement
procedures.
Background
In mid-2007, the European Commission announced its intention to evaluate the systems
of redress mechanisms in Europe and the ways in which they could be improved. It was
stressed that before taking any measure, the Commission aimed to gather more
information and feedback from the Member States, the European Parliament and
stakeholders. This opened the door to an increasing interest in discussions on consumer
redress mechanisms. The Commission decided to include this issue as a priority in the
agenda with different Directorates General working in parallel on the matter.
White Paper on Damages Action for breach of antitrust rules
In April 2008, DG COMP published a White Paper on Damages Actions for breach of
the EC antitrust rules.152 The White Paper presented a set of recommendations to ensure
that victims of competition law infringements have access to effective mechanisms for
claiming full compensation for the harm they have suffered. These recommendations aim
to offer a solution to the current compensation systems in place. The White Paper’s key
recommendations cover collective redress, disclosure of evidence and the effect of final
decisions of competition authorities in subsequent damages actions.
In September 2008, the European Parliament (EP) began discussing the White Paper and
adopted it in March 2009. The most debated issues had been the question of a sufficient
legal basis, the primacy of public antitrust enforcement, and the possibility of a horizontal
measure for collective redress instead of a sector-specific solution. In the following, a first
draft legislative proposal for a Directive arose from DG COMP at the end of March 2009.
It differed from the EP’s views by leaning towards U.S.-style class actions and therefore,
another legislative proposal of the Commission is now expected in the course of 2009.
152 European Commission. 2008. White Paper on Damages action for breach of the EC antitrust rules [COM
(2008) 165 final] SEC(2008) 404 SEC(2008) 405 SEC(2008) 406, 2 April.
135

136. Green Paper on Consumer Collective Redress
In November 2008, DG SANCO published a Green Paper on Consumer Collective
Redress153 which seeks to facilitate redress in situations where large numbers of
consumers have been harmed by a single trader’s practice by breaching consumer
protection legislation. The Green Paper contains an evaluation of the existing consumer
redress mechanisms. It concludes that the current redress situation in the EU is
unsatisfactory and presents several problems. To close the identified gaps, DG SANCO
presented several options varying from cooperation between Member States to judicial
collective redress procedures in all Member States. Due to the feedback from
stakeholders, DG SANCO changed the policy options and conducted a further
consultation of market participants starting in May 2009. In this follow-up consultation
DG SANCO leaned towards an EU-wide judicial collective redress mechanism including
collective Alternative Dispute Resolution mechanisms.
Consultation on Alternative Dispute Resolution in the area of financial services
To further improve alternative redress mechanisms, DG MARKT launched a public
consultation on Alternative Dispute Resolution (ADR)154 in the area of financial
services in December 2008. The Commission expressed that currently consumers and
financial services providers will not always have the option of resolving their domestic or
cross-border disputes through an ADR scheme. The objective of the consultation was to
seek views on how ADR schemes in the area of financial services could be improved in
the internal market.
ESBG views
Existing redress & dispute Existing redress & dispute resolution schemes at national level need further assessment.
resolution schemes at ESBG supports the Commission’s initiatives in this area in order to provide consumers with
national level need effective and efficient redress and dispute resolutions mechanisms. However, further
further assessment. assessment is necessary of the existing redress and dispute resolution schemes at the
national level before introducing any EU legislation in the field.
Future measures should not ESBG has expressed its concerns about some of the Commission’s actions in this field, as
create an imbalance between care should be taken to ensure that the future European measures do not create a
consumers’ rights and disproportionate imbalance between consumers’ rights to effective redress mechanisms
banks’ business. and the ability of businesses to function without fear of unmeritorious claims being
brought against them. In this regard, ESBG stated the need to learn from the American
litigation experience and make sure that procedural reforms do not open the door to
litigation abuse in Europe. During discussions in the process, the Commission’s explicit
recognition that the aim is not to develop a lawsuit culture based on the American model
was therefore very welcome. Against this background, a first Commission draft proposal
of spring 2009 raised concerns by indicating a contrary approach. At the same time,
ESBG acknowledged the increasing awareness of private enforcement in competition
matters. ESBG believes, however, that the application of the “subsidiarity principle”
should be taken into account before proposing any harmonisation of important aspects
of Member States’ procedural and tort law. Furthermore, it is a matter for national law
to provide the procedural safeguards for the exercise of consumers’ rights, in particular
for the exercise of collective actions.
153 European Commission. 2008. Green Paper On Consumer Collective Redress [COM (2008) 794 final] 27 November.
154 In addition, DG SANCO has also launched a comprehensive study on Alternative Dispute Resolution in
March 2009.
136

137. Regarding ESBG views on ADR in financial services, ensuring mechanisms for effective Alternative Dispute
consumer dispute resolution and redress is a key issue for the savings and retail banks Resolution has a long-
which have a long-standing tradition of providing consumers with “in-house“ complaints standing tradition
departments. Internal complaints handling provides consumers with the opportunity to in financial services.
resolve their complaints directly without imposing a fee or charge for accessing or using
these processes.
ESBG members’ experience is that consumers and businesses should first attempt to Existing out-of-court
resolve their disputes directly before seeking recourse through third-party mechanisms. settlements should be
Having said that, ESBG welcomes the Commission initiative examining the problems that promoted rather than
consumers face in obtaining effective redress. ESBG is strongly in favour of out-of-court establishing new ones.
settlements. In this context, it is worthy to mention the existence of FIN-NET155,
a network of national out-of-court complaint schemes dealing exclusively with
consumer’s disputes in the area of cross-border financial services. Most of ESBG members
participate in the FIN-NET network through their respective national contact points.
Therefore, in this area the work should be focused on promoting existing out-of-court
settlements rather than establishing new ones.
7.5. European contract law
Key messages
n ESBG in principle supports the initiative of a handbook to achieve a coherent and consistent European
legislative framework.
n The Draft Common Frame of Reference is not practicable because of the lack of consideration of the input of
stakeholders provided by the CFR-Net.
n ESBG calls for an open exchange of views and an appropriate impact assessment.
n ESBG is concerned about the legal basis for the Common Frame of Reference and indicates that it shall be
limited to subjects relevant to the Single Market.
Background
In its Action Plan on European contract law of 2003156, the European Commission
announced that it would examine whether problems in the European contract law area
may require non sector- specific solutions such as an optional instrument.
The Commission established a long-term project, the Common Frame of Reference (CFR),
which aims to provide the European Legislators (Commission, Council and European
Parliament) with a "toolbox" or a handbook to be used for the revision of existing and
the preparation of new legislation in the area of contract law. This toolbox could contain
fundamental principles of contract law, definitions of key concepts and model provisions.
155 For more information see European Commission. 2009. FIN-NET. Financial Dispute Resolution Network.
[http://ec.europa.eu/internal_market/fin-net/docs_en.htm]. Accessed in June 2009.
156 European Commission. 2003. Communication to the European Parliament and the Council. A more Coherent
European Contract Law. An Action Plan [COM (2003) 68 final], 12 February.
137

138. After several years of work, in April 2008 the Study Group on a European Civil Code and
the European Research Group on Existing EC Private Law officially launched the Draft of
a Common Frame of Reference (DCFR).157 The Draft contains “Principles, Definitions and
Model Rules of European Private Law” in an interim outline edition. One purpose of the
text is to serve as a model for drawing up a ‘political’ Common Frame of Reference (CFR).
Nevertheless, the Commission has stated several times that if a CFR emerges, it would
not necessarily have the same coverage and content as the DCFR.
The Commission has informed about its intentions regarding the DCFR stating that it will
make a selection from the work of the two groups. Such a selection process should take
place during summer 2009. All the interested parties – the EP working group,
the Council, the researchers and the CFR-Net experts – would be consulted on the result
of this process. The consultative document is scheduled to be released in the summer of
2009. However, the Commission did not explain how such a selection would preserve the
consistency of the final result and has been criticised throughout the discussions by the
members of the two groups. They feared that a “cherry-picking” by just taking over
certain parts and rules from the DCFR would undermine the logic and structure of the
whole work done so far.
The legal basis and the content had been discussed under the Czech presidency and will
be continued under the Swedish presidency of the EU in the second half of 2009.
ESBG views
It is important to achieve As member of the CFR-Net, ESBG actively follows the debate on European Contract Law
a coherent and consistent and generally supports this initiative. However, it is important to achieve a coherent and
European legislative consistent European legislative framework and there are some concerns regarding the
framework. following issues:
The legal basis or ESBG would like to draw attention to the question regarding the creation of a legal basis
its creation for such for such an optional instrument. The EC Treaty neither provides a specific competence to
an optional instrument create private law instruments, nor does it provide any general competence to harmonize
has to be questioned. private law. Any future optional instrument will have to be limited to rules on the subjects
that are particularly relevant to the Internal Market.
The overall draft structure of the CFR based on the Principles of European Contract Law
is not appropriate, as these principles are far too detailed, too academic and, all in all,
too adverse to taking account of the views of stakeholders, i.e. consumers’ and industry’s
positions.
The final outcome of this ESBG regrets that the members of the two groups did not consider input and comments
initiative is not reflecting the provided by the CFR-Net and hence did not modify their drafts where appropriate, so that
practitioner’s point of view. the final outcome of this initiative is not reflecting the practitioner’s point of view.
ESBG therefore calls for a truly open exchange of views by way of transparent
consultations which take proper account of all stakeholder groups and carrying out
appropriate impact assessment, in line with the EC’s “better regulation” policy.
157 Study Group on a European Civil Code and the Research Group on EC Private Law (Acquis Group). 2009.
Principles, Definitions and Model Rules of European Private Law. Draft Common Frame of Reference
(DCFR). Outline Edition, Munich [http://webh01.ua.ac.be/storme/2009_02_DCFR_OutlineEdition.pdf].
Accessed June 2009.
138

139. 7.6. Consumer rights
Key messages
n ESBG supports the initiatives of the Commission to simplify and to make European consumer protection
legislation consistent.
n ESBG believes that there is a need to strike the right balance between consumer protection and the industries’
competitiveness.
n ESBG stresses that it is important that the Commission works towards the establishment of a coherent and
consistent regulatory framework in the areas of contract law, consumer protection and financial services in
order to provide legal certainty to both consumers and industry alike.
Background
On 8 October 2008, the European Commission adopted the proposal for a Directive on
Consumer Rights.158 The proposal is a result of the review of the Consumer Acquis159
which covers a number of Directives on consumer protection. The Review of the
Consumer Acquis was launched in 2004 with the objective to simplify and complete the
existing regulatory framework. The overarching aim of the review was to achieve a real
business-to-consumer internal market. This means striking the right balance between a
high level of consumer protection and the competitiveness of enterprises, while ensuring
respect of the principle of subsidiarity.
The Directives under review contain minimum harmonisation clauses meaning that
Member States may maintain or adopt stricter consumer protection rules. Member States
have made extensive use of this possibility. The outcome is a fragmented regulatory
framework across the Community which causes significant compliance costs for
businesses wishing to trade cross-border. The new proposal on Consumer Rights refers to
pre-contractual information, rules on delivery and passing of risk to the consumer, cooling
off periods, repairs, replacement, guarantees and unfair contractual terms.
The Consumer Rights Directive had been discussed at the European Parliament and the
Council but further assessments have to be undertaken by the Parliament and the
Commission in the course of 2009.
ESBG views
In its response to the consultation launched by the Commission in May 2007, ESBG Achieving the right balance
welcomed the Green Paper on the Review of the Consumer Acquis. It is an expression of between consumer
the Commission’s commitment to its Better Regulation principles and the objectives of protection and industry
the Lisbon Agenda. At the same time, ESBG supported the Commission in its efforts to competitiveness is vital.
revise the proposed directives in order to simplify and improve the consistency of the
current European consumer legislation framework, to the benefit of the Single Market.
Furthermore, in the response to the consultation, ESBG also pointed out that achieving
the right balance between consumer protection and industry competitiveness is of
paramount importance.
158 European Commission. 2008. Proposal for a Directive of the European Parliament and of the Council on
consumer rights [COM (2008) 614/3 final] SEC(2008) 2544 SEC(2008) 2545 SEC(2008) 2547, 8 October.
159 European Commission. 2007. Green Paper on the Review of the Consumer [COM (2006) 744 final],
8 February.
139

140. The EU should target With regards to the current proposal for a Directive on Consumer Rights, although
a coherent framework financial services are in principle outside the scope of the current proposal, some of the
for contract law, provisions might be applicable in the area of financial services. ESBG is therefore
consumer protection & concerned about the interaction of the proposed Directive with other legislation on
financial services. consumer protection issues which is currently under the Commission’s review – such as
the revision of the Directive on Distance Marketing of Financial Services. Other EU
initiatives will also be affected, such as the Common Frame of Reference for contract law.
The Commission should work towards the establishment of a coherent and consistent
regulatory framework in the areas of contract law, consumer protection and financial
services in order to provide legal certainty to both consumers and industry alike. In this
respect, there is a need to clarify to what extent the proposal will be applicable in the area
of financial services.
140

141. 8. RETAIL PAYMENTS
Key messages
n The future European retail and commercial payments landscape is first and foremost shaped by political vision
and legislation – rather than widely expressed customer requirements.
n The concept of regulating a function performed by market players (payment account, payment services)
rather than market players on the basis of their institutional status is a major legislative innovation. Only time
will tell whether the benefits for society outweigh the risks for customer confidence and payment system stability.
n Adoption of SEPA160 payment instruments by government authorities and related entities (accounting for
about 30% of European payment transaction volume) will be an essential driver of massification, and the
logical consequence of the heavy public policy dimension of the SEPA project.
n Savings banks have since the beginning supported the SEPA project yet have constantly warned that the
interests of retail customers must be preserved both in the design of payment instruments, and in their market
transposition.
Background
Retail payments are payments instructed and received by end-customers for the purchase
of goods and services, including social services and tax. End-customers can be consumers,
SMEs and corporates, or public administrations and other government related entities.
Such payments are either one-off or repeat instructions given to a bank by a payer to
execute to the benefit of a payee, or initiated by a payee on the basis of a mandate given
by the payer, directly or through the banking/payment institution channel. In the future
– after the transposition of the Payment Services Directive161 which should theoretically take
place by 1 November 2009 – a payment service provider could include a payment institution).
In 2009 – almost 8 years after the introduction of the physical euro, the promulgation of Regulators’ theory that
Regulation 2560/2001162 on cross border payments in euro, and over a year after the pricing had been the biggest
launch of the SEPA (Single Euro Payments Area) Credit Transfer Scheme163 and the SEPA obstacle to integration has
Cards Framework164 – the overwhelming majority of retail and commercial payments been defeated.
continue to be payments made and received within the borders of an EU Member State.
160 Single Euro Payments Area – a project to eliminate any differentiation between national and cross border
payments within the euro area.
161 Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment
services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and
repealing Directive 97/5/EC Text with EEA relevance, OJ L 319, 05.12.2007.
162 Regulation (EC) No 2560/2001 of the European Parliament and of the Council of 19 December2001on cross-
border payments in euro, OJ L 344, 28.12.2001
163 European Payments Council. 2008. SEPA Credit Transfer Scheme Rulebook (EPC125-05 version 3.2),
approved by the EPC Plenary on 24 June 2008, effective on 2 February 2009.
164 European Payments Council. 2006. SEPA Cards Framework Version 2 (Cards-027/05 version 2.0), approved
by the EPC Plenary on 8 March 2006.
141

142. Indeed most authoritative market analysts estimate that at a maximum 2% (or about
1.7 billion, according to the latest ECB Blue Book165) of all retail and commercial payment
transactions in the EU are cross-border transactions. This would be in spite of the fact that
well-oiled channels for cross border credit transfers and payments with cards have existed
for decades, and in spite of the fact that as a consequence of Regulation 2560/2001,
since mid-2003 the cost for making cross border credit transfers has been equal to the
cost for making a national credit transfer – in most instances reducing that cost to zero.
The regulators’ theory that pricing had been the biggest obstacle to integration has thus
been defeated. Indeed, with a zero cost, the number of credit transfers should have
become infinite – which it did not, by a wide margin.
The notion of “euro This represents substantial evidence towards the reality that retail and commercial
payment” will first appear payments remain payments made and received locally – in essence within 30 kilometres
in “border corridors.” of where the payer and the payee live and/or are established. Incidentally, this is the
current situation in the U.S., a market which definitely has enjoyed a single currency for
over two centuries, and a fair extent of harmonization as far as retail payment legislation
is concerned. Indeed the vast majority of non-cash payments are payments driven by the
provision of work (i.e. salaries and wages) and work-related services (pensions, etc.), as
well as social security and similar transfers. Equally, utility payments (electricity, gas, etc.)
represent a large volume of recurrent, usually non-cash payments. One should not loose
track either of the fact that in Europe today, there are still over 300 billion cash transactions
every year. It should be noted, however, that within the EU there are 2 “border corridors”
where 150 million people live within 50 kilometres of another country’s border. It is very
likely that the notion of “euro payment” will really appear first within these corridors,
where citizens will be enticed by the option of working and sourcing goods and services
across the nearest border, whilst maintaining their account where they reside, or shifting
it to where they work.
In addition there still are today (in mid-2009) vastly different patterns in the usage of both
the volume and the types of non-cash payment instruments across the EU Member
States. According to the figures of the European Central Bank (ECB) Blue Book there is a
20 to 1 difference between the number of per capita non-cash payment transactions
between the EU country using them most (Finland), and the country using them least
(Romania). There are significant differences also between “large” and “small” countries
– with an almost 1 to 200 gap between the smallest and the largest. Furthermore there
are completely different patterns of usage of types of non-cash instruments, with broad
groupings between countries still favouring cheques, countries favouring credit transfers,
and countries favouring direct debits. Finally, the usage of cards also differs greatly,
between countries where cards are used effectively for point-of-sale payments,
and countries where cards are used mostly for cash withdrawals at ATMs (Automated
Teller Machines).166
ESBG preliminary assessment
Will this situation be radically and dramatically changed with further harmonization at the
legal level (in essence, the mandatory transposition by 1 November 2009 of the Payments
Services Directive (PSD) into national legislation) and the further deployment of the SEPA
project (in essence, the launch of the SEPA Direct Debit Schemes167)?
165 Produced by the ECB and provides a comprehensive description of the main payment and securities
settlement systems in EU Member States.
166 See Statistical Annex, Part 2.
167 European Payments Council. 2009. SEPA Core Direct Debit Scheme (EPC016-06 version 3.3) approved by the
EPC Plenary on 31 March 2009
142

143. This is unlikely for 2 reasons:
Firstly, the PSD is an attempt to harmonize consumer protection in the field of payment The Payment Services Directive
services, and to introduce greater competition in the provision of these services by attempts to harmonize
allowing a new category of players – payment institutions – to compete with credit consumer protection and
institutions. Very wisely, the PSD acknowledges the local dimension of payment services, offers 23 provisional waivers
and allows Member States to waive for no less than 23 of the provisions of the European to Member States.
text in favour of choices made at national level. This is an endorsement by the European
legislators of the continuing, predominant local dimension. Local customers will – to a
very large extent – continue to enjoy the protection and convenience provided by local
legislators and providers. Of course customers either dissatisfied with, for example, the
choice available at the national level, and/or in utter need of a provider outside their place
of residence, will be able to have access to services under better known and
understandable conditions – which is significant progress. During the elaboration of the
Directive, significant concern was expressed that the intended harmonization target
would be missed due to translation, transposition, and conflict of law issues.
Secondly, the SEPA Schemes (Credit Transfer and Direct Debit) mostly introduce bank- DG Competition will only
to-bank (or, more exactly: payment service provider to payment service provider) take responsibility for the
standardization as regards the structure and the content of the instruction and reporting cross border space, making
messages to be exchanged. Regarding end customer impact, all will be dictated on one the effective amount of
side by the PSD and its transposition, and on the other side by applicable competition integration limited.
legislation.168 As a consequence, the SEPA Schemes by themselves will have a rather
marginal impact on integration. It is interesting to note in this respect that after years of
claiming the contrary, DG Competition recently admitted to the banking industry that it
only holds responsibility for the cross border space. Responsibility at the Member State level
continues to be held by national competition authorities. As a consequence, the effective
amount of integration – beyond standardization – will be limited. Again, however, there is no
indication that this would conflict with actual customer expectations and/or requirements.
The lack of massification from the biggest stakeholders, i.e. reluctant public administrations Public administrations
and corporates makes investing a challenge. The lack of migration to the new schemes must adopt SEPA to create
forces the maintenance of parallel legacy systems – a costly exercise. The large differences a massification effect.
in infrastructure and implementation between larger and smaller countries should not be
overlooked either as these will continue to be the cause of tension during migration
– larger countries invested heavily in costly-to-implement infrastructure that give a low
per-transaction cost, whilst smaller countries need substantially less infrastructure
investment to obtain a low per-transaction cost. Yet the value-added products that could
be developed on top of SEPA as a means to recuperate costs could be far more limited in
smaller countries than in larger ones.
These legislative and regulatory signals are compounded by the debate instigated by The policy maker-driven
European policy makers about the necessity for a mandatory end date for SEPA nature of SEPA is emerging
migration169 and by the ever more open admission that SEPA is public-policy driven. ever more clearly.
At the same time these same policy makers are promoting the concept of e-SEPA
– implying that any effort towards SEPA can only bear fruit if the former is achieved –
thus installing a prospect of never-ending transformation of the payment landscape,
with a corollary of continued European legislative and regulatory intervention.
168 Treaty on European Union, OJ C 191, 29.07.1992. Applicable national legislation.
169 European Commission. 2009. Consultation of the European Commission Internal Market and Services DG on
Possible End-Date(s) for SEPA Migration, MARKT/H3/VM D(2009), 8 June.
143

144. Market participants are longing for a stable legal and regulatory environment.
Only absolutely necessary legislative or regulatory initiatives should be undertaken on the
basis of wide, open, and transparent market consultations and impact assessments.
Is a legislatively While SEPA was originally portrayed as a self-regulated project, the reality that it is a
mandated end date for SEPA political and policy-maker driven initiative is increasingly becoming apparent today.
migrations avoidable? Regulators’ insistence that an end date should be implemented confirms SEPA’s
transformation from a market driven assumption to a regulatory driven initiative.
Indeed this regulatory insistence stands in sharp contrast to EPC’s 2005 Crowne Plaza
Declaration170 which agreed that the adoption of SEPA products would be market driven.
The continued intervention of policy makers and regulators in SEPA developments, and
the significant legislative and regulatory content which is being transposed, have anchored
the perception in the general public that SEPA is a policy maker/regulatory driven
initiative. In such a context it becomes increasingly difficult to sway customers to migrate
on the basis of value propositions. Thus the setting of a mandated end date could
become unavoidable.
At any rate, applicable competition legislation would not allow for an end date to be set
by self-regulation. Yet for regulators to set and enforce a legally sanctioned end date
would not only compel change but also cause a wide reaching ripple effect. Indeed, it
cannot be ignored that an end date would change the nature of the market for payment
services by mandating supply and enshrining commoditization, polarising attention on
the migration process and on the deadline (away from possible enhancements and
innovation), and creating additional costs (which because of legal/regulatory/ market
constraints cannot be recouped) at the level of individual market participants by
interrupting depreciation and investment planning.
Pre-conditions for such a setting of an end date should include publicly announcing
the end date at least five years prior to taking effect in order to allow all stakeholders
concerned to depreciate existing applications where relevant, making the end date
contingent on public administrations and related entities complying with a specific end
date which should be set mid-course in order to ensure a massification effect, and ensuring
that at national level all payment originators and collectors have become familiar with
– and are using – the IBAN and BIC standards.
The European Commission SEPA migration should be as short as possible to fully reap the potential benefits of the
sees up to EUR 123 billion in SEPA project. The study171 undertaken on behalf of the Commission published last year
potential benefits in a swift estimates potential benefits for SEPA of up to EUR 123 billion over a six year period
migration to SEPA. (2007–2012). On the other hand, if migration is slow, losses could amount to EUR 43
billion. The effects on stakeholders are also expected to vary sharply depending on the
success of the uptake of SEPA. For consumers, benefits may vary from EUR 12 to EUR 129
per person over the course of six years. The other stakeholders may incur benefits if SEPA
is implemented quickly and comprehensively, but may loose money if this is not the case.
A swift migration to the basic SEPA instruments is also essential for a successful mass
adoption of innovative services (i.e. e-payments, m-payments and e-invoicing), which are
based on these basic SEPA instruments.
170 European Payments Council. 2005. Crowne Plaza declaration. Brussels, 17 March 2005.
171 Capgemini Consulting. 2008. SEPA: Potential Benefits at Stake - Researching the impact of SEPA on the
payments market and its stakeholders.
144

145. In line with this rationale and assuming that a binding end date can be publicly announced
in 2010, the deadline could be set no earlier than 2015. Because of the changes required
for corporate accounting and processing parameters, it must be acknowledged that a
SEPA migration is infinitely more complex than the migration to the euro.
An additional variable is injected by the current economic crisis. Many market players and The economic crisis has
observers have noted that the crisis spells a return to the notion of “national” at the created a nationalistic
expense of other objectives. For example corporates who could have been convinced by preference for country
the SEPA logic to consolidate country accounts into European ones are now keen to accounts and credit as well as
retain them – as well as the credit lines attached to them. Furthermore the crisis has cast more doubt over the
obviously brought business case considerations to the fore. Many have long held that SEPA microbusiness case.
whilst SEPA (i.e. the creation of an EU domestic payment system) is a public good initiative,
the business case at micro-economic level proves far more elusive. The economic crisis will
do little to help with the micro-economic business case.
The stances of European institutions need be reconciled as a matter of urgency. The pro- The question of who
integration stance of DG Markt and the ECB at times conflicts with the positions taken ultimately pays for SEPA
by DG Competition. In particular as regards payments, the question of who actually will has not been answered.
pay for SEPA has never been answered by policy makers. The “no customer charging”
approach of DG Market and ECB rests ill with the “no interbank charging” stance of DG
Competition. This and the very long response times from authorities (over 3 years in some
instances) directly affect banks’ bottom lines and capabilities.
What does this bode for the medium term?
After transposition of the PSD, a harmonised legal framework will be in place that establishes
a “commodity payment account”, mandates transparency of terms and conditions at
pre-contracting levels, eases the termination of contracts, and invites broader competition
by creating payment institutions. Although some may perceive them as burdensome,
the consumer safeguards provided for in the PSD are justified (it should be noted that,
for the purpose of this discussion, “consumer” is used interchangeably for “end user”).
Regulators should acknowledge that SEPA-related policies are redistributive between
those consumers who have neither the need nor intent to make or receive “cross-border”
payments and the minority of European citizens who do or are interested in doing so.
The recently announced MBP/interchange policy172 only compounds this distortion by
forcing cross-subsidisation.
With customer protection in place, it comes as somewhat of a surprise that regulators While banks see interchange
now drastically challenge the business models for the provision of payment services – at as the most efficient way to
least in the field of direct debits and payments with cards. Two and a half years after recoup cost, competition
informing the European competition authority of its plans for the SEPA Direct Debit authorities do not, and will
Scheme the banking payment industry was informed that the intended default ban it after 2011.
interchange mechanism would not be acceptable beyond 2011 – although no significant
transaction volume is expected to be registered any earlier. Although many banks see
interchange as the most efficient way to recoup costs, competition authorities view them
as stymieing what should be a constant search for actively lowering their cost basis.
172 European Commission and European Central Bank. 2009. Joint statement by the European Commission and
the European Central Bank clarifying certain principles underlying a future SEPA direct debit (SDD) business
model .SEC(2009)397, 24 March 2009.
145

146. It strikes the casual observer that in both instances justifications provided by the
competition authority are rooted in lessons drawn from the past, or from current
situations in a limited number of countries, and/or for a limited number of payment
instruments. Admittedly, there is no economic theory available that would model the
transformation over a number of years of multiple payment landscapes (each with their
differing sets of habits, practices and laws) into an “internal market for payments”. In the
absence of such model, to rein in (or outlaw) interchange on top of customer protection
provided by other legislation could be read as good policy.
Regulators feel that self Regulators’ preference for direct pricing models (i.e. models where end-customers are
regulation has not succeeded directly charged for the services they buy or use) is a long term goal (not limited to direct
so direct debits risk debits, or payments) which will be difficult to reverse. Whilst direct pricing has merits, its
becoming a commodity. implementation at the time of a major market transformation (i.e. the PSD, pan-European
scheme) is questionable. Authorities have not prepared public opinions for such a radical
change, and regulators have condoned cross-subsidization for decades (e.g. for cash).
Although some national competition authorities have recently inquired about
interchange for legacy direct debits, the ECB’s and DG Competition’s emphasis that any
position is their’s only leads to question the breadth of support for their policy. This would
confirm SEPA as a top-down vision, in effect limited to cross-border. A presentation173 by
the ECB Director General for Payment Systems and Market Infrastructures on 16 March
and a speech174 on 17 March by the Director General of DG Markt, indicate that
regulators perceive self-regulation as having failed (certainly the fact that there is a new
Regulation 2560 fortifies this view). This means that direct debits will be viewed as a
regulator mandated product – in effect a commodity.
The banking industry has A banning of interchange for direct debits (and in effect a banning of return
been left to explain to arrangements when the debtor is directly accountable, e.g. lack of funds – or 80% of the
debtors why they will now cases) affects up to 88% of direct debits paid in euros. In many countries it will be
be charged for direct debits. impossible to charge the debtor for legal or practical reasons. In the absence of
interchange, debtor banks will cross-subsidize the SEPA Direct Debit – to the benefit of
creditors and creditor banks. The 10 February ECOFIN meeting175, whilst confirming
Finance Ministers’ support to the SEPA project, also re-confirmed the principle of
“non-degradation” of services. This means that SEPA products may not be more
expensive, yet not less performing, than existing national payment products – thus
creating a “perfect squeeze” for debtor banks. In addition, the ECB Issues Note176 of
8 May seems to suggest that it will up to the banking industry to explain to debtors why
– breaking with decade-long practice – they will be charged for paying by direct debit.
This is unlikely to spur acceptance.
The above decision only provides certainty for the cross border space – i.e. 1% of the
transaction volume. In addition, the baseline (types and number of payment instruments
used) differs vastly across Member States. All of this compounds a distortion of the level
playing field – rather than enhancing competition.
173 SEPA Direct Debit presentation by Jean-Michel Godeffroy at COGEPS, Frankfurt 16 March 2009.
174 Speech by Jörgen Holmquist at Friends of Europe Roundtable on Electronic Payments and Competition in
Europe, Brussels 17 March 2009
175 European Union’s Council of Ministers for Economy and Finance (ECOFIN). 2009. 2922nd Meeting of the
Council of Economic and Financial Affairs, 10 February 2009. 6069/09 (Presse 32).
176 ECB, SEPA High-Level Meeting Issues Note, 8 May 2009.
146

147. The conditions for payment service providers to determine the nature and level of
remuneration they seek from end-customers and/or intermediaries (including each other)
should be assessed by competition authorities against the new background of a large,
harmonised payment area, with significant consumer protection dispositions – unlike any
other existing at the national level for the time being.
On one side the cross-subsidisation that will be induced by the competition authorities’
current approach to interchange actually defeats the objectives pursued with the PSD.
On the other side, whenever it would not be possible to cross-subsidise (e.g. because of
legal constraints), then the competition authorities’ current approach equates to levying
a tax on the banking sector – as SEPA is not so much a choice as a political obligation.
Whilst the cost of notably card payments is discussed openly, the cost of cash is pushed Unlike card payments the
aside, or misleadingly used by competition authorities for tactics such as the “tourist cost of cash is often ignored
test”177 that justify disputable decisions on interchange fees. Policy makers tend to ignore or misused.
that cash costs are infrastructure costs (with a significant fixed basis), which often cannot
be externalised to customers. However little progress has been made regarding the
repositioning of cash in society. Whilst acknowledging that the “war on cash” campaign
promoted by some does little towards creating the necessary conditions for a useful
dialogue about repositioning, policy makers and regulators should also soon accept that
there is more to the cash equation than operational aspects only. This must lead to
acceptance that cost perceptions and the anonymity feature of cash – for both customers
accepting and disbursing cash – play a determinant role, which have to be changed for
Europe to move decisively towards a digital economy.
However without convenient alternatives and cost transparency in particular for face- Legislation to harmonize
to-face transactions, cash in circulation still expands sharply – averaging 7% of GDP in professional cross border
the EU 27 compared to 5% in the U.S., and yet little has been done to harmonize the cash transport is necessary to
27 national processes and conditions for distributing and recycling euro cash. Almost 8 years reap the benefits of a true
after the introduction of the physical euro, it is still in most instances impossible for internal market.
professional cash transports to cross a border even between 2 eurozone Member States,
resulting in more risks and costs and less competition.
The renewed initiative178 from the European Commission to try and redress this situation
through legislation which would create the conditions for cross border cash transport by
professionals is welcomed. What the legislator should pursue is the creation of a true
internal market for professional cash transport. Any lesser objective would lead to
questioning the policymaker’s stance on the need for SEPA and an internal market for
payments. It is suggested that to introduce greater coherence in the path towards SEPA,
professional cash transportation should be included in the overall SEPA plan.
Accordingly ESBG would request that in a 1st Phase, cross border cash transportation is
formally allowed – as soon as possible – within “cross border corridors” spanning up to
100 kms on each side of a border. In a 2nd Phase, at the latest by the end date that the
European Commission is currently contemplating setting for the migration of legacy
payment instruments to the SEPA Credit Transfer and Direct Debit Schemes, any limitation
to cross border cash transport should be lifted and a genuine internal market should
become possible.
177 See i.a. Rochet, J.-C. and J. Wright. 2009. “Credit Card Interchange Fees” (23 January 2009), as presented
at the joint ECB/ De Nederlandsche Bank Conference Retail payments: integration and innovation on
25 May 2009.
178 European Commission. 2009. White Paper final by the European Commission on Professional Cross-Border
Transportation of Euro Cash by Road between Member States in the Euro Area, COM(2009) 214, 18 May 2009.
147

148. The topics of e-SEPA The concept of “e-SEPA179”, as promoted by European authorities, is as yet ill-defined
are too broad to be handled and ill-understood. It seems to cover domains such as e-invoicing in which banks can play
under the sole responsibility a very limited role, and where there still are considerable legal hurdles to be removed for
of the banking industry. any progress to be seen. It is unwise for the banking industry to be seen as co-responsible
for what will be – even more than SEPA – a very long and uncertain process. As to other
dimensions of “e-SEPA”, we are in effect talking about either using existing schemes over
different access channels, or enhancing end-to-end convenience, again for existing
schemes/payment instruments, such as e-payments (online payments) and m-channel
(mobile channel).
A clear distinction needs to be made between mobile and online payments on one side,
which in many instances are only extensions and/or alternative channels to initiate and/or
receive classic payment instructions such as credit transfers and direct debits, and
e-invoicing on the other, which represents a completely different value chain in which
banks play a very limited role. It must furthermore be highlighted that for the foreseeable
short term future there will be limited deployment of actual m-payment solutions in
Europe – simply because the massive enabling Near Field Communication (NFC)
deployment – essential as in Europe m-payments will mostly be a niche application for
substituting very, very low value cash transactions is still at least 2 years away.
Attributes like convenience, There can be no dispute that the mobile phone is developing into the key interaction
user friendliness and medium for citizens. Any residual doubt should be dispelled by the European
perceived low costs have Commission’s Digital Competitiveness Report180 that finds the mobile penetration rate to
lead to a penetration rate have reached 119% in the EU in 2008. The stellar growth in mobile phone deployment
of 119% for mobile phones leads mobile phones to be increasingly used either for receipt of bank statement or
in the EU. transaction information, or for payment initiation, or payment execution. From the onset
the possibilities created by mobile phones for payments and banking have been much
promoted – as not unusual the speed of market acceptance is slower than most
predictions. Such rapid adoption of new technology and related services certainly
demonstrates that customers have been swayed by key product attributes such as great
convenience, user friendliness and perceived low costs.
As far as developed countries are concerned, there is consensus amongst market experts
that the target for mobile payments will be the displacement of cash for very low value
transactions (e.g. transactions under EUR 20). Business cases are heavily savings and
transaction price-dependent. Furthermore massive NFC deployment – expected to be a
key enabler – is still two years away.
The EPC decided in December 2007 to develop an “E-Payments Framework”181, a piece
of work which is currently the subject of a consultation with all national communities.
It should be confirmed that the E-Payments Framework approach is coherent with
the principles of building on international standards and defining conditions for
interoperability between existing market solutions, thus giving market participants
options for participation (either interlinking or migrating) which are pro-competition.
179 See i.a. Amundsen, E. and D. Kalsone. 2009. “E-Payment products and value-added services – moving towards
an innovative European internal market,” (25 March 2009), Danmarks Nationalbank Working Paper.
180 European Commission. 2009. Commission Communication to the European Parliament, the Council,
the European Social and Economic Committee and the Committee of the Regions on Europe’s
Digital Competitiveness Report – Main achievements of the i2010 strategy 2005-2009, COM(2009) 390,
4 August 2009.
181 European Payments Council. 2009. Consultation: Draft SEPA e-Payment Framework Service Description
issued 4 June (EPC283-08 Version 1.0 draft 0.14). European Payments Council. 2009. Consultation: Draft
SEPA e-Payments Framework e-Operating Model - High Level Definition issued 30 April 2009 (EPC084-09
Version 1.0 draft 1.5).
148

149. Indeed the interoperability and possibly convergence that will be triggered by the
E-Payments Framework will open the market for competition between payment service
providers in their efforts to recruit both merchants and buyers, both choosing between a
range of solutions on the basis of their features and pricing. This healthy competition
should provide a continued incentive for further innovation – far more than a sole,
co-operative or rather commodity-like approach.
As with the e-channel, the challenge is not to create a new payment instrument (e.g. a
set of technical standards complemented by a rulebook), but a framework organising the
logical layers that will support the provision of mobile payment services by participants in
the payment industry, and formulating the core requirements that will ensure there is
interoperability between the multiple solutions that will develop in a competitive market.
The business case for switching from paper to e-invoicing is supported through multiple The Commission has
study results: France Case Study182 – B2B savings of EUR 40 billion (2001), Capgemini acknowledged that
Study183 – EUR 238 billion over 6 years, Danish Government184 – G2B savings EUR 100- e-invoices must be treated
134 million/year, EACT-CAST Project185 – 80% cost saving. The Expert Group convened on a par with paper invoices.
in February 2008 by the European Commission is to deliver by the end of 2009 a
“European Electronic Invoice Framework (EEI)186, and foster open and interoperable
e-invoice services”. Work structured in three streams namely business requirements,
the legal and regulatory framework, and network and standards solutions, is well
underway. The extremely low overall penetration rate of e-invoicing in the EU is notably
due to uncertainty regarding the treatment of invoices with respect to VAT and different
perceptions as to how to guarantee authenticity and integrity of data.
In order to overcome these hurdles, the Expert Group proposed, and the Commission
acknowledged, the principle that e-invoices must be treated on a par with paper invoices.
Obstacles created by diverging legal and tax practices must be overcome, and solutions
must remain technology neutral. Furthermore the Expert Group believes that the overall
process control framework within and between trading entities is the crucial element in
order to ensure the secure transmission and storage of e-invoices. The constant
application of such business controls should represent the most important reassurance to
tax authorities that VAT processes are correct. The Expert Group also formulated an EEI
Model Agreement187 which would help create a binding framework for sellers and buyers
to use and accept electronic invoices (whether they deal directly with each other or
through a service provider).
182 ICT Policy Initiatives of the European Commission presentation by Costas Andropoulos, Brussels 9 March 2009.
183 Capgemini Consulting. 2008. SEPA: Potential Benefits at Stake - Researching the impact of SEPA on the
payments market and its stakeholders.
184 ICT Policy Initiatives of the European Commission presentation by Costas Andropoulos, Brussels 9 March 2009.
185 The EACT (European Associations of Corporate Treasurers) project CAST (Corporate Action on Standards).
186 Under development by the European Commission’s Expert Group of E-Invoicing.
187 Under development by the European Commission’s Expert Group of E-Invoicing.
149

150. 150

151. 9. ANTI-MONEY LAUNDERING,
COUNTER TERRORIST FINANCING
AND FINANCIAL INSTITUTIONS
Setting the scene
In order to protect the global financial system from illicit financial activities and to
enhance the integrity of financial markets, the prevention of money laundering and of
financing terrorism has become a major priority in the international arena in recent years.
Money laundering is not a new phenomenon. However, the new threats of the 21st
century by terrorist attacks raise international awareness towards the problems of money
laundering and terrorist financing. While the nature of money laundering and terrorist
financing is different, both issues are intimately linked.
Money laundering is an extremely complex process involving ever-changing financial
set-ups which imitate legitimate commercial operations as closely as possible. In brief,
money laundering operations include three stages:
n First, the pre-laundering or placement, where the criminal seeks to conceal any
connections between the money and its criminal origin.
n The laundering or layering in the second stage consists of multiplying the number of
transactions in order to dilute the funds through different channels.
n In a third step, recycling or integration makes the funds available again.
Nowadays, money laundering takes place via international circuits through the use of
new technologies and disparities between national laws.
To address these developments, already in 1989 the G-7 established an inter-governmental
body on international level. The Financial Action Task Force (FATF) – bringing together
33 states – developed and promoted policies both at national and international levels to
combat money laundering and terrorist financing.188
In Europe, the creation of the Single Market provides advantages for businesses and
consumers but also increases opportunities for money laundering and financial criminal
activities. The EU – being aware of these associated risks – has therefore adopted
legislation to protect the financial system and prevent money laundering and the
financing of terrorism. The first Anti-Money Laundering Directive on the prevention of the
use of the financial system for the purpose of money laundering adopted in 1991189
concentrated on drug trafficking. It obliged credit and financial institutions to identify
customers and transactions exceeding EUR15,000, to examine any suspicious transaction
possibly related to money laundering, and to inform the authorities of any fact which
might be an indication of money laundering. Such reporting in good faith shall not
constitute a violation of banking secrecy and must be made to specialized bodies known
as Financial Intelligence Units (FIUs).
188 Financial Action Task Force (FATF-GAFI). 2009. “FATF Home”. Paris [http://www.fatf-gafi.org/pages/
0,2987,en_32250379_32235720_1_1_1_1_1,00.html]. Accessed June 2009.
189 CouncilDirective 91/308/EEC of 10 June 1991 on prevention of the use of the financial system for the
purpose of money laundering, OJ L 166, 28.6.1991.
151

152. These central national agencies are charged with analysing the information collected
from credit and financial institutions and, in case of serious evidence of money
laundering, forwarding the case to prosecuting authorities.
In 2001, Directive 2001/97/EC extended the scope to a series of non-financial activities and
professions which are vulnerable to misuse by money launderers.190 Just a few years later,
the European Union adopted Directive 2005/60/EC191 on the prevention of the use of the
financial system for the purpose of money laundering and included terrorist financing.
Moreover, in 2006 the European Commission launched an informal dialogue with the
financial industry to exchange views on the issues in practice regarding Anti-Money
Laundering and counter terrorist financing.
As one of the keys to prevent money laundering transactions and to reveal suspicious
transactions, knowing the person behind the relevant transaction seems to be essential.
This approach is represented in the legislative measures of the Commission, which is to
identify the parties behind the transaction. In particular, non-face-to-face activities
challenge the capacity of the existing measures to ensure appropriate identification of the
customer, thus bearing a risk of anonymity or false identity. Especially in retail banking
with its focus on providing locally financial services to its customers, savings banks
practice in their daily work a face-to-face relationship with their customers and maintain
this approach through a wide-spread regional network of representations. Therefore, ESBG
stresses the importance of a sound and stable business-consumer relationship to counter
the risk of money laundering and terrorist financing.
ESBG welcomes all the Commissions initiatives and is actively involved. However, in order
to provide realistic expectations as to what financial institutions are able to achieve in
practice, ESBG emphasises the importance of consulting and considering financial
industries’ experiences for more effective regulatory initiatives in future.
9.1. The Third Anti-Money Laundering Directive
Key messages
n ESBG highlights the risk of human error when revealing the transmission if a data subject pursues his/her right
to access his/her personal data.
n Practical problems with the rule on “no tipping-off” occur, particularly when it comes to opening a basic bank account.
n The provision for feedback from national Financial Intelligence Units after filing a suspicious transaction
report requires improvement.
n ESBG is concerned about the obligation to identify and verify the identity of beneficial owners because of the
lack of access to sufficient and reliable information for carrying out such identification.
n The Commission should develop clearer guidelines regarding the extent of measures which a bank needs to
take in order to be considered compliant with the rules on beneficial ownership.
n ESBG is concerned that there is no coherent application of the treatment of Politically Exposed Persons
throughout the EU.
n ESBG calls for an official EU Politically Exposed Persons list since the definition of a Politically Exposed Person
is very broad.
190 Directive 2001/97/EC of the European Parliament and of the Council of 4 December 2001 amending Council
Directive 91/308/EEC on prevention of the use of the financial system for the purpose of money laundering,
OJ L 344, 28.12.2001.
191 Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of
the use of the financial system for the purpose of money laundering and terrorist financing, OJ L 309, 25.11.2005.
152

153. Background
The Third AML Directive 2005/60/EC came into force on 15 December 2007 and aims to
include the funding of terrorism in the definition of money laundering. It extends the
application of the system to trusts and insurance intermediaries and introduces a
simplified due diligence system as well as banning anonymous accounts. Moreover, it
incorporates the 40 Recommendations of the FATF192 on anti-money laundering and
counter terrorist financing.
The Third AML Directive introduces a risk-based approach which means that banks are
obliged to implement customer due diligence requirements proportionally to the concrete
risks in each particular case depending on the type of customer, country,
and transaction at hand. Enhanced due diligence should be carried out when there is an
increased risk. As consequence, supplementary measures have to be taken in order to
verify the identification documents and to assess third-party institution's anti-money
laundering and anti-terrorist financing controls.
Moreover, the Third AML Directive introduces more specific and detailed provisions for
the identification and verification of the customer and of the “beneficial owner”.
A beneficial owner is defined as the natural person who, directly or indirectly, owns or
controls 25% or more of the shares or of the voting rights of a legal person.
The definition in the Directive covers multiple constellations even if the account holder is
a legal entity.
In addition, the Third AML Directive imposes requirements, such as the applicable level of
the due diligence, concerning the risks associated with customers who, by virtue of their
position in public life, are vulnerable to corruption, and sets out ways for firms to deal
with such Politically Exposed Persons (PEPs). The Directive defines PEPs as “natural persons
who are or have been entrusted with prominent public functions and immediate family
members or persons known to be close associates of such persons”. Examinations of PEPs
were already considered best practice but through the Third Directive this procedure has
become law. National PEPs are excluded from the banks’ obligations to apply enhanced
due diligence.
Moreover, any disclosure to the customers that information related to their transactions
has been transmitted to the authorities is prohibited through the Directive, the so-called
“no tipping-off” rule.
In order to enhance the efficiency of AML, the Commission adopted level 2 implementing
measures193 to the Third Directive, such as a definition of what should be understood by
the term PEP, technical criteria allowing simplified due diligence, and technical criteria to
exclude persons or entities with limited activities from the scope of the Directive.
194 Financial Action Task Force (FATF-GAFI). 2003. “40 Recommendations”. Paris [www.fatf-gafi.org/
document/28/0,3343,en_32250379_32236930_33658140_1_1_1_1,00.html]. Accessed June 2009.
193 Commission Directive 2006/70/EC of 1 August 2006 laying down implementing measures for Directive
2005/60/EC regarding the definition of ‘politically exposed person’ and the technical criteria for simplified
customer due diligence procedures and for exemption on grounds of a financial activity conducted on an
occasional or very limited basis, OJ L 214, 4.8.2006.
153

154. ESBG views
The “no tipping-off” rule ESBG welcomes the risk-based approach, as it allows targeting efforts where they are
creates practical problems. needed most. Regarding ESBG members’ experiences in relation to the rule on “no
tipping-off”, members generally seem not to experience any problems. Nevertheless,
some find that safeguarding the non-disclosure of the transmission to the Financial
Intelligence Unit (FIU) requires special attention and special procedures to be taken into
account by staff members manually. This carries the risk of human error which would
reveal the transmission if a data subject utilises his/her right to access his personal data
on the basis of the Privacy Directive 95/46/EC.194 Furthermore, practical problems with
the rule on “no tipping-off” do occur – particularly when it comes to opening a basic
bank account.
Feedback from national FIUs Furthermore, as relates to the provision of feedback from their national FIUs after filing a
should be improved. suspicious transaction report, ESBG members as well as the industry see substantial room
for improvement. It seems that understaffing is a problem for some FIUs and in general
it appears that there is substantial lack of feedback to the reporting bank. Moreover, the
structure and designated powers of the FIUs vary widely in the 27 Member States.
How far do banks need to go Regarding beneficial owners, ESBG is concerned about the obligation to identify and
in investigating the identity verify their identity. Identifying a beneficial owner is not always easy, in particular in cases
of the beneficial owner? where the account holder is a legal entity. In this regard, the key issue for financial
institutions in terms of risk assessment is to understand the ownership and control
structure of the customer. Many times, due to the lack of an official register or when the
company is very small, financial institutions do not have access to sufficient and reliable
information for carrying out such identification. Considering the complicated ownership
structures of companies nowadays, the financial industry is concerned that the
implementation of the directive at the national level does not sufficiently stipulate how
far a bank must go in taking measures to decide on the beneficial owner.
The treatment of ESBG doubts that there is a coherent application of the treatment of PEPs throughout the
Politically Exposed Persons in EU, as there is no official PEPs list and the definition of PEPs is very broad. In the current
the EU seems incoherent. situation, the European Commission should release an official “EU PEPs list” to facilitate
a coherent application of the rules. Prior to the Third AML Directive, financial institutions
checked on a voluntary basis existing commercial lists to identify “Publicly Exposed
Persons”. Now, on a daily basis ESBG members encounter the problem that, because of
the broad definition of a PEP in the Third AML Directive, the financial institution’s staff
needs to make the distinction between “Politically Exposed Persons” and “Publicly
Exposed Persons”. The latter is based on a commercial list, which leads to interpretation
problems. Commercial lists therefore, can only be provided per Member State and can
not be harmonised with an EU PEPs list.
There is a need for As a more general comment, the Commission should develop clearer guidelines
clarification on how far regarding the extent of measures which a bank needs to take in order to be considered
investigations have to be compliant with the rules on beneficial ownership. It should be clarified how far
undertaken. investigations have to be undertaken, also depending on the size of the client and the
level of risk considered to be involved in the type of business the client carries out.
194 Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of
individuals with regard to processing of personal data and on the free movement of such data, OJ L 281,
23.11.119.
154

155. 9.2. Compliance at Group Level
Key messages
n Banks have an interest in having good knowledge about operations and transactions of customers throughout
the group.
n Not all problems regarding compliance at group level have been defined due to the lack of transposition of
the Third AML Directive in all Member States.
n There is great value in establishing harmonised Data Protection rules for the handling of cross group
information in order to know what is acceptable when processing personal data for AML purposes.
n Bank secrecy laws should not hinder transmission of information within a banking group about a customer
when it is needed for “Know Your Customer” or when it comes to suspicion of Money Laundering.
Background
The so-called “compliance at group level” is currently being intensively discussed at the
European level – dealing with AML requirements for groups active in different countries.
In order to identify difficulties for compliance by financial institutions with the Third AML
Directive at group level in an EU cross-border context, the Commission is therefore
carrying out a survey among banks.
One of the assumptions of the survey is that financial institutions tend to have a global
risk management policy. The difficulties that may arise can be the result of more stringent
or additional AML requirements in national legislation (gold-plating), but also as a result
of of bank secrecy rules, data protection rules or different national supervisory practices.
The Commission considers that discrepancies or inconsistencies between national AML
regimes could give rise to legal uncertainty, operational problems (or operational
advantages), and/or increased costs for financial institutions.
The Commission survey is related to data protection rules and their relation with the
transfer of customer data across borders. This is especially complicated when the group
involves banks outside of Europe. The final Commission report issued in July 2009
concludes that, despite the minimum harmonisation nature of the AML Directive, the
degree of convergence across Member States’ AML rules applicable to banks is relatively
high. However, national regulatory differences remain in certain areas – in particular
regarding the interaction of AML rules with national data protection rules and with bank
secrecy rules and their impact on banks’ AML policies at group level (especially regarding
the information flows within the group). Based on these findings, the Commission will
prepare its report on the application of the AML Directive due on 15 December 2009.
ESBG views
ESBG members are very active and contributed to the Commission’s study at the end of
2008. Although ESBG members are currently focusing on the recently implemented
national legislation following the Third AML Directive, some Member States have not
transposed the Directive into national law yet. For that reason, it is not certain that all
problems regarding compliance at group level have been defined. There are, however,
legal issues that have an impact on how a banking group can operate within the EU.
155

156. Given the legal responsibilities to handle issues at group level, and given the reputation
risk involved, it is in a bank’s own interest to have good knowledge about what is
happening throughout the group. This is especially valid as some customers might
conduct business in another part of the group as well.
Excessive information On the division of the sanctions list, a large amount of information in the official list leads
in the official sanction list to complications for financial institutions when screening for sanctions. Whenever the
leads to complications. Commission wishes to offer “additional information”, it should be very clear that all the
additional information on goods or personal data is only for reference and not for
blocking transactions.
Great value to have Data In order to handle this cross group information, it would be of great value to have Data
Protection rules harmonised. Protection rules harmonised in order to know what is acceptable when processing
personal data for AML purposes. It should be clear that it is allowed to share data about
customers for consolidated “Know Your Customer” (KYC) and suspicious Money
Laundering activities (ML) and probably also allowed to share data for a group-common
Money Laundering-register. The question of which personal data is allowed to be used in
customer approval processes, cross-border payments and checks against customer
databases should be answered in a consistent manner across the EU.
Furthermore, bank secrecy laws should not hinder transmission of information within a
banking group about a customer when it is needed for KYC or when it comes to
suspicion of ML.
9.3. Financial Action Task Force – FATF
Key messages
n There are mutual benefits for policymakers and the industry from further exchanging views and the
Consultative Forum is a successful and workable format.
n There is a need for adequately timed consultation periods which allows the financial industry to provide
reasonable and substantive responses.
Background
The Financial Action Task Force on Money Laundering (FATF) – also known by its French
name ”Le Groupe d'action financière sur le blanchiment de capitaux (GAFI)” – is an inter-
governmental body founded in 1989 by the G-7. Its scope of action has widened from
being related to the fight against money laundering to also include terrorist financing.
Recently a “third leg” has been added to its remit: the fight against the financing of
proliferation of weapons of mass destruction (so-called Proliferation Financing).
156

157. As the standard setter to generate the necessary political will to bring about legislative
and regulatory reforms in these areas, the FATF has published 40 recommendations on
money laundering195 and nine special recommendations on terrorist financing.196
The 40 Recommendations, updated in 2003, contain measures against money laundering
– covering the criminal justice system and law enforcement, the financial system and its
regulation, and international co-operation.
To guarantee a swift implementation of the nine special recommendations on terrorist
financing, the FATF issued an action plan.197 In taking its action plan forward, the FATF
will intensify its co- operation with the FATF-style regional bodies and international
organisations, such as the United Nations, the Egmont Group of Financial Intelligence
Units198, the G-20, and International Financial Institutions that support and contribute to
the international effort against money laundering and terrorist financing.
In early 2008, the FATF created the Consultative Forum aimed at establishing a successful
and workable format for exchanges of views between policymakers and the industry.
ESBG views
The work in the area of anti-money laundering and proliferation financing is of great There is a mutual benefit
importance and there are vast opportunities as well as benefits from working in for the industry and
collaboration with the FATF. It is certainly of mutual benefit for the industry and the FATF as policymakers
policymakers to exchange views on the legal, technical and practical aspects of any to exchange views.
measure to reach the underlying aims. The Consultative Forum is one example of how
the FATF has managed to establish a successful and workable format for such exchanges
of views. ESBG very much welcomes those efforts.
Looking forward, ESBG and its members would like to see an even more enhanced and Consultation periods need
intensified cooperation between the industry and the FATF. As a starting point, the to allow for a reasonable
consultation periods need to be long enough to allow for a reasonable and substantive and substantive response.
response to be provided. At present the consultation timelines are very limited and
therefore do not allow any in-depth assessment. Thus, the industries’ contributions to the
debate are rather general and in some cases explicitly provisional. The situation is
regrettable and recent consultations cannot be considered as proper consultations as
such. This is important not only in order to create practicable and targeted measures but
also to ensure efficient, timely and effective implementation of the policy measures.
195 Financial Action Task Force (FATF-GAFI). 2003. Financial Action Task Force on Money Laundering.
The Forthy Recommendations. Paris [www.fatf-gafi.org/dataoecd/7/40/34849567.PDF]. Accessed June 2009.
196 Financial Action Task Force (FATF-GAFI). 2004. Financial Action Task Force on Money Laundering. Paris
[www.fatf-gafi.org/dataoecd/8/17/34849466.pdf]. Accessed June 2009.
197 For more information see Financial Action Task Force (FATF-GAFI). 2002. “Terrorist Financing. FATF Action Plan
against Terrorist Financing”. Paris[ www.fatf-gafi.org/pages/0,3417,en_32250379_32236947_1_1_1_1_1,00.
html#actionplan]. Accessed June 2009.
198 For More information see Egmont Group. 2009. “The Egmont Group”.www.egmontgroup.org]. Accessed
June 2009.
157

158. 9.4. Proliferation financing
Key messages
n Financial institutions do not usually have the insight in the underlying business transaction and details
required to pass judgment on the possibility of Proliferation Financing as being the underlying aim of the
financial transaction.
n There are difficulties in identifying suspicious transactions with “dual-use” goods, serving several purposes.
n Despite severe industry feedback on the FATF proliferation financing report, the industry’s concerns have not
been considered appropriately.
n There is a need for indicators describing characteristics in clear and unambiguous terms, not containing
elements requiring further individual assessment.
Background
Although there is no official definition, the FATF describes proliferation financing in its last
“Proliferation Financing Report” as “providing financial services for the transfer and
export of nuclear, chemical or biological weapons; their means of delivery and related
materials.”199
The FATF report on Proliferation Financing, published in 2008, makes a general
assessment of the threat of proliferation financing including a number of risk factors
which makes a jurisdiction vulnerable. The section on “witting and unwitting” actors
addresses issues particularly relevant for financial institutions such as risk management
and customer due diligence, correspondent banks, reviewing and monitoring transactions,
as well as identifying suspicious activity. In the annex, the report provides typologies
which are elements indicating proliferation financing. These so-called red-flag indicators
provide general scenarios where there may be reasons to suspect proliferation financing.
Several countries have undertaken different strategies and measures to disrupt the
financing of terrorism – including (among others) by identifying and blocking the sources
of funding for terrorism, freezing the assets of terrorists and denying terrorists access to
the international financial system. The multilateral financial prohibitions contained in the
United Nations Security Council Resolution 1540 of 2004200 introduce an additional tool
that complements existing counter proliferation regimes.
Regarding the EU’s action in this field, the European Commission considers it a priority to
intensify efforts to prevent and sanction the financing of proliferation. In this regard, the
Commission asked Member States to raise the awareness of financial institutions and to
strengthen their machinery for combating the financing of proliferation. Moreover, the
Commission called for improving the cooperation between administrative authorities and
financial supervisory authorities.
199 Financial Action Task Force (FATF-GAFI). 2008. Proliferation Financing Report. Paris [http://www.fatf-gafi.org/
dataoecd/14/21/41146580.pdf]. Accessed June 2009. Fore specific details see pp. 9-23.
200 Resolution 1540 (2004) adopted by the Security Council on 28 April 2004 [S/RES/1540 (2004)], 28 April.
158

159. ESBG views
ESBG members are already active in the fight against proliferation of weapons and related Banks generally cannot pass
goods by applying the existing financial sanctions against specific entities or persons judgement on the possibility
involved in these activities. However, the fact that the vast majority of business of proliferation financing.
transactions with a proliferation background will involve goods which by themselves are
inconspicuous limits the possibility for banks to detect them. In all but the most
exceptional cases, a proliferation connection can therefore only be derived from the
overall context – and even then only by intelligence and proliferation experts, and usually
only in hindsight. Financial institutions are only involved in the financial transaction and
thus do not have insight into the actual business transaction. Therefore, financial
institutions regularly do not have the details required to pass judgement on the possibility
of Proliferation Financing as the underlying aim of the transaction. Even if details about
the contract goods are provided in the respective documents, financial institutions do not
possess the technical expertise to assess if the goods could be used to produce weapons
of mass destruction. Only specialised experts from the export control authorities are
skilled and have the necessary, technical knowledge.
Moreover, many goods are so-called “dual-use” goods, meaning that they can be used
for several purposes. Among these could be goods necessary for the creation of weapons
of mass destruction whereas another purpose is perhaps construction in general. In any
event, financial institutions lack the expertise to pass judgement on whether a particular
good is consistent with the business activity of the supposed recipient or with the
technological level of a country. The same applies correspondingly to inconsistencies with
respect to the pricing of goods and transport.
Any future measures to hinder the financing of proliferation of weapons of mass Customs authorities
destruction must put realistic expectations on financial institutions. In areas where are more likely to detect
customs authorities are more likely to detect such activity, the responsibility should suspicious activity.
certainly target those actors, not least for efficiency reasons.
As with terrorism, the proliferation of weapons of mass destruction poses a serious and Industry concerns on
fundamental threat. ESBG members therefore attach great importance to contributing to proliferation have not been
the fight against this proliferation. Nevertheless, it is regretful that despite severe industry appropriately considered
feedback on the FATF proliferation financing report, the industry’s concerns have not by the FATF.
been appropriately considered.
There are large problems in the way that the FATF places responsibility on financial Clear indicators not requiring
institutions in an area where they have little, if any, possibility of control. Along with the further individual assessment
financial industry, ESBG is in particular concerned that the report intends to provide a list and/or judgment are needed.
of red-flag indicators. It is not feasible to impose additional control obligations on
financial institutions as long as certain restricted products and materials are concerned.
Financial institutions do not have the necessary knowledge to be able to judge the
technical background. In this regard, the indicators, in order to be useful, should describe
only such characteristics which are present and noticeable in the information available.
Furthermore, the indicators need to describe these characteristics in clear and
unambiguous terms and should not contain elements requiring further individual
assessment and/or judgment.
159

160. The characteristics in question must have actual distinguishing properties, describing
characteristics for which empirical evidence has been demonstrated to appear with a
significantly higher probability in connection with cases where the risk has materialised
than in cases where the risk has not materialised.
All of the mentioned “inconsistencies” are relatively common occurrences in legitimate
international trade transactions. Thus, they are not suitable for identifying transactions
with a potential proliferation background.
Instead of imposing any inefficient new control obligations on financial institutions, the
approach to provide reliable and adequate information about suspicious persons and entities
should be strengthened. This approach enables financial institutions to verify if any of
these persons or entities is a recipient of a financial transaction and to halt the transaction.
9.5. Financial Sanctions
Key messages
n It seems that relevant authorities do not consider banks’ work in practice while drafting financial sanctions.
n Hence, ESBG highly appreciates the established exchange of views with European regulators.
Background
The application of financial sanctions consists of bans on the provision of specific services
(brokering, financial services, and technical assistance), prohibitions on investment,
payments and capital movements.
Most of the governments as well as the EU are administering financial sanctions through
the publication of a consolidated list of financial sanction targets. By using these lists
banks and other financial institutions can scan their customer databases and discover
financial assets controlled by those who are a listed target.
The EU and its Member States have often imposed financial sanctions, which can be
designed to target specific persons, groups, and entities responsible for the objectionable
policies or behavior. Financial institutions and other entities are required to check whether
they maintain any accounts or hold any funds or economic resources for, or provide financial
services to, the individuals and/or entities subject to related EU financial sanctions.
The implementation difficulties (legal status, incomplete information, etc.) of the
electronic consolidated list of financial sanctions of the European Commission201 have
been discussed for some time already. As a result, the improvement of the electronic
consolidated list has been identified as a key priority.
201 European Commission. 2009. “Consolidated list of persons, groups and entities subject to EU financial sanctions”.
Brussels [http://ec.europa.eu/external_relations/cfsp/sanctions/list/consol-list.htm]. Accessed June 2009.
160

161. In order to facilitate the application of financial sanctions, the financial industry and the
Commission recognised the need for an EU consolidated list of persons, groups and
entities subject to related financial sanctions. It was therefore agreed that the financial
industry would set up a database containing the consolidated list for the Commission,
which would host and maintain the database and keep it up-to-date. This database was
developed first and foremost to assist the financial industry in their compliance with
financial sanctions.
At the international level, the United Nations started a first exchange of views with
representatives of the financial industry in order to improve the implementation of the UN
financial sanctions.
ESBG views
There is a general issue that banks and credit institutions are obliged to implement
financial sanctions which are drafted by authorities, such as the United Nations and
the European Commission, without taking into account the work of credit institutions
in practice.
For that reason, ESBG welcomes the established discussions with the Commission and Banks and the EU institutions
Council representatives on how to improve the applicability of financial sanctions for should discuss the applicability
banks. Moreover, the requests and recommendations for best practices of the financial of financial sanctions
industry have been largely taken into account by legislators in the guidelines to for banks.
implement and evaluate sanctions.202
To better implement the UN financial sanctions, ESBG along with the financial industry Banks need legal security
recommended that (i) the identification of persons or organisations targeted by financial when applying the
sanctions should be improved; (ii) the definition and handling of the “freezing of funds” resolutions in good faith.
should be improved and made more practicable without favouring targeted account/safe
deposit holder, (iii) competent authorities should ensure rapid clarification, unfreezing
and authorisation procedures and (iv) the legal security of banks and their staff should be
improved by an exemption from liability when applying the resolutions in good faith.
202 Council of the European Union. 2005. Guidelines on implementation and evaluation of restrictive measures
(sanctions) in the framework of the EU Common Foreign and Security Policy. Brussels
[http://register.consilium.europa.eu/pdf/en/05/st15/st15114.en05.pdf]. Accessed July 2009.
161

162. 162

163. 10. SME FINANCING
Key messages
n There is a need to coordinate and adapt different EU polices for SMEs to avoid excessive administrative burdens,
as these impact more significantly on smaller entities like SMEs, by using the ‘Think Small First Principle’.
n There is a need to facilitate the registration procedure for setting up an SME, the access to the Single Market
for SMEs and the ability to go cross-border by providing information on Member State registration procedure
and taxation.
n There is a need to bring coherence, to communicate and to clearly define the aim and target group of
different European financial support programmes for SMEs.
n There is a need to take a comprehensive and coordinated approach in the provision of microcredit taking into
account the principle of subsidiarity.
n There is a need to facilitate the provision of microcredit at the national, regional and local level via targeted
business support of, and cooperation between local banks and support organizations.
n There is a need to pay special attention to the follow-up actions and exchange best practices in SME financing
activities.
Setting the scene
Small and medium-sized enterprises (SMEs) are considered the backbone of the European
economy and serve as principal creators of innovation, jobs and wealth. At the European
level, an SME is defined as an enterprise with fewer than 250 employees, a turnover of
up to EUR 50 million or a balance sheet of no more than EUR 43 million. SMEs represent
a major part of the European economy. It is estimated that some 23 million SMEs in the
EU provide approximately 75 million jobs. Ninety-nine percent of all enterprises in Europe
are SMEs, under the Commission’s definition, and in some industrial sectors SMEs
represent almost 80% of the total employment. They play a central role in achieving the
Lisbon goals of the European Union to become the most competitive and dynamic
knowledge based economy in the world.
Against this background, SME policy has become a natural priority for the European
Commission seeking to improve the business environment for SMEs in general, to simplify
the regulatory environment for European companies and to tackle the financing problems
that small and medium-sized enterprises face. This has resulted in a number of initiatives
like the Small Business Act for Europe (SBA) and several financial support systems at the
European level, such as the Competitiveness and Innovation Framework Programme
(CIP), European Fund for Regional Development (EFRD), European Social Fund (ESF), the
Joint European Resources for Micro to Medium Enterprises initiative (JEREMIE), the Joint
Action to Support Micro Finance Institutions in Europe (JASMINE) and the proposed
Progress microfinance facility.
163

164. JASMINE
In November 2007, the European Commission adopted a Communication203 to improve
access to finance for micro-entrepreneurs and financially excluded people. The proposed
initiative had four different strands:
n improving the legal and institutional environment in the Member States;
n changing the climate in favour of entrepreneurship;
n promoting the spread of best practices, including training; and
n providing additional financial capital for microfinance institutions.
The Communication recommended setting up a dedicated support structure for microcredit
with the view towards developing mentoring services which are essential to support
micro-borrowers setting up a business, to develop good market practices by creating a
specific microcredit label and a guide of good conduct.
The Communication also put forward a proposal to create, together with the European
Investment Fund (EIF) and the European Investment Bank (EIB), a facility for financial
support to microcredit. A microcredit initiative – the so called Microfund – was proposed
for this means. The initiative was planned to be embedded in the JASMINE project, an
instrument developed by DG Regional Policy of the European Commission, the European
Investment Bank (EIB) and the European Investment Fund (EIF) to increase the range of
microcredit available in Europe through supporting the non-bank institutions providing
such credits.
The JASMINE initiative was launched in September 2008. It covers the provision of
funding in a co-finance facility which started to be operational in spring 2009, technical
assistance to be provided to the microfinance institutions by the Euopean Commission,
as well as the development of a Code of Conduct for microfinance institutions.
In relation to the Commission’s activities in this field, an own-initative Report on
Microcredit was drafted in the European Parliament’s Committee on Economic and
Monetary Affairs (ECON) in 2008 and voted in Plenary in March 2009.204
Small Business Act
The Small Business Act was published in the form of a Commission Communication in
June 2008,205 setting out ten principles, a set of new legislative proposals guided by the
“Think Small First” principle, and a commitment to cut administrative burden by 25% by
2012. The 10 principles of the SBA are the guidelines to the conception and implementation
of SME policies at the EU and Member States’ level. The essential principles aim to create
a level playing field for SMEs, applying the ‘Think Small First Principle’ and to improve the
legal and administrative environment for SMEs. Moreover, other principles address the
issues of granting a second chance for business failures, facilitating access to finance, and
enabling SMEs to turn environmental challenges into opportunities.
203 European Commission. 2007. Communication from the Commission to the Council, the European
Parliament, the European Economic and Social Committee and the Committee of the Regions A European
Initiative for the development of micro-credit in support of growth and employment [COM(2007) 708
final/2], 20 December.
204 European Parliament. 2009. Report on European initiative for the development of micro-credit in support of
growth and employment (2008/2122(INI)) Committee on Economic and Monetary affairs of 29 January 2009,
Rapporteur: Zsolt Laszlo Becsey.
205 European Commission. 2008. Communication from Commission to the Council, the European Parliament,
the European Economic and Social Committee and the Committee of the Regions. ‘Think Small First’. ‘A
“Small Business Act” for Europe’ [COM(2008) 394 final] SEC(2008) 2101 SEC(2008) 2102, 25 June.
164

165. In addition, the SBA outlines the time needed to start a new company, the maximum time
to obtain business licenses and the ‘One-Stop-Shops’ to facilitate start-up and
recruitment procedures. The SBA seeks new ways to stimulate interest in SMEs and family
businesses and new ways to cultivate a more entrepreneurial mindset for innovation and
upgrade of skills. The SBA also contains four legislative proposals:
1) The simplification of state aid rule and increase of investment for SMEs;
2) The establishment of a European Private Company Statute (EPC);
3) The reduction of value added tax (VAT) for labour intensive and/or locally supplied
services; and
4) An amendment to the Directive on late payments.
The proposal was adopted by the ministers of the Competitiveness Council in December
2008, supplemented by an action plan committing the Commission and the Member
States to a number of priority actions. In the context of the economic slowdown,
the actions aim to facilitate access to finance for SMEs, reducing their administrative
burden and enabling them to fully benefit from the opportunities offered by European
and international markets.
The Member States made a commitment to efficiently applying the "Think Small First"
principle when formulating and implementing policies.206 They will also use the "SME
Test" when assessing the impact of forthcoming regulation on SMEs. The Plenary of the
European Parliament adopted a resolution on a “Small Business Act” in March 2009.207
Progress Microfinance Facility
On 2 July 2009, the Commission issued a proposal for a Decision to establish a European
Microfinance Facility for Employment and Social Inclusion. The so-called Progress
Mircofinance Facility was one of the actions announced by the Commiission
Communication ‘A shared commitment for Employment’.208 In order to fund the new
facility, the Commission will reallocate EUR 100 million from the existing EU budget and
aims to leverage up to EUR 500 million in cooperation with international financial
institutions and in particular the European Investment Bank (EIB) Group. The facility is
open to public and private bodies established in Member States which provide
microfinance to persons and micro enterprises in the EU. It will facilitate access to
microcredit by providing equity and debt financing. In addition, it will also support
measures such as training and mentoring. The Progress Microfinance Facility is expected
to be approved by the end of 2009 and be operational in 2010.
ESBG Views
ESBG in general welcomes the measures taken by the European Commission towards
improving the business environment for SMEs. Nevertheless, there is still work to be done
in the area of administrative rules and regulations, the access to finance in the form of
financial support programmes, microcredit and lending, cross-border activities and CSR
for SMEs.
206 French Presidency Council of the European Union. 2008. Competitiveness Council: Political Agreement on
the SBA, establishment of an antion plan for European SMEs. Brussels [http://www.eu2008.fr/impression
PDFe93d.pdf?url=%2FPFUE%2Flang%2Fen%2Faccueil%2FPFUE-12_2008%2FPFUE-
01.12.2008%2Fconseil_competitivite__principaux_resultats]. Accessed June 2009.
207 European Parliament. 2009. European Parliament resolution of 10 March 2009 on the Small Business Act
(2008/2237(INI)).
208 European Commission. 2009. Communication from the Commission to the Council, the European
Parliament, the European Economic and Social Committee and the Committee of the Regions. A Shared
Commitment for Employment [COM(2009) 257 final], 3 June.
165

166. Savings Banks are important ESBG members are traditionally natural business partners of SMEs, following their
partners of SMEs throughout business development throughout the SME’s lifecycle, tackling problems that may arise
their lifecycle. and sharing successes. Indeed, it is predominantly the savings banks’ “proximity model”
of local presence, in combination with their clear focus on retail banking which is at the
root of the close relationship between savings banks and local businesses. As a result,
savings banks belong to Europe’s most important providers of SME finance, and are
furthermore important partners to micro enterprises. They provide the whole range of
financial products to SMEs at local level, giving access to loans, guarantees, microcredits
as well as to the equity and capital markets. In addition, savings banks often try to
support SMEs from the very onset of their existence, or at later stages by providing
alternative services, such as private equity. Given the close and long-standing business
relationships between SMEs and savings banks, ESBG is committed to taking an active
part in the work in this field, and to assist the Commission in its work towards a better
business and financial environment for European SMEs.
The Small Business Act
For all SBA measures the ESBG considers it very important to improve the business environment and financing
‘Think Small First” principle for SMEs. The measures proposed in the SBA are undeniably in line with the general goal
has to be strictly applied. to cut administrative burden for SMEs. ESBG would however have preferred the
Commission to include far reaching measures in the SBA which would have strengthened
the value of the statements made in the Act. Such an action could have included an
official recognition at the national level to the “think small first” principle and be
incorporated into all policy making targeted towards SMEs. Nevertheless, ESBG welcomes
the commitment made by Member States during the Competitiveness Council meeting
to apply the “Think Small First” principle.
EU policies to alleviate In this context, it is important to avoid any overlapping measures. There is a need to
administrative burdens need coordinate different EU policies in order to avoid excessive administrative burden for
better coordination. European SMEs. This is not least of great importance when it comes to providing EU
financial support for SMEs and micro enterprises.
EU policies should be Regarding the administrative burden on SMEs which is caused by EU legislation, it is
adapted to small important to acknowledge that the imposed administration, as such, tends to have a
business entitities. more significant impact on smaller entities than on larger corporations. SMEs are small
entities, and by their nature, these entities face different problems than those of larger
corporations. A preferred solution would be to adapt EU legislation to smaller enterprises,
where possible. At the same time, the smaller enterprises are also more likely to focus
their business activities on their national, regional or – in many cases – local markets.
This calls for a different approach towards the support provided for SMEs. The proximity of
the services provided by ESBG members to their SME clients has proven a successful tool.
166

167. Another issue for attention is the administration for the creation of an enterprise which The setting up of SMEs,
varies greatly across the EU. In order to facilitate business creation, the time and cost for their registration and
registration needs to be addressed. In this regard, the Commission should play a role in transfers should be
facilitating the registration procedures. Measures already undertaken by the Commission facilitated.
like the initiative “Business start-ups in one week” of 2007, should be carried on and
fostered with the SBA to make SMEs able to compete not only on their home market.
Transfer of businesses from one generation to another has also become increasingly
important. Work to facilitate such transfers is important as too complicated procedures
could result in a loss of already built up, functioning enterprises. Thus, the question of
subsidiarity arises and overlapping measures with already existing initiatives in the
Member States must be avoided.
The idea of the Commission presented in its SBA, to turn the environmental challenge CSR should be promoted
into opportunities for SMEs is very welcome and in line with ESBG’s general approach for SMEs.
towards assisting SMEs in becoming more aware about the environment in which they
operate. Considering the importance given to social responsibility within their own
organisations, savings banks take every opportunity to assist their SME clients to improve
and promote their respective work carried out in the field of social responsibility.
ESBG members have a longstanding contribution to CSR and a number of schemes
within ESBG member institutions target SMEs specifically.
Supporting SMEs going across borders
Looking ahead, support functions for SMEs are needed not only for creating a favourable
business environment in their home markets, but also for SMEs deciding to go
international. An increasing number of SMEs are entering into cross-border activity and
even small-scale entrepreneurs begin to see the possibilities in expanding their businesses
across national borders. As SME partners, banks need to think ahead and be flexible in
terms of offering simple solutions that enable SMEs to get in contact with local service
providers in prospective new markets.
It is important to facilitate access to the Single Market, not only for larger companies, but SMEs should be able
also for SMEs and micro-enterprises. An initial measure, in order to assist SMEs going to operate easily within
across borders, could be to encourage Member States to provide clear, user-friendly the Single Market.
information on the Internet regarding their national registration procedures and taxation.
In order to be accessible for foreign SMEs, such information should preferably be
available in different languages, or at least in the native language and English. The One-
Stop-Shop that will be established with the implementation of the Services Directive, also
electronically, by the end of 2009 is an important step.
ESBG has over the years put great effort into assisting SMEs that are expanding ESBG’s International Business
internationally. It has in particular set up a joint subsidiary, Tevea International, which network assists SMEs in
offers para-banking services for SMEs involved in import/export activities. Moreover, a operating within the EU.
new service was recently launched, also as part of European savings banks’ effort to
develop business cooperation: the International Business Network (IBN). This network is
designed to support SME customers in their business abroad with a trans-national service
offer. The network also focuses on the provision of quick and easy access to reliable and
useful information on account opening requirements and banking conditions in general
for SMEs in the destination country.
167

168. Access to finance
EU financial support With regards to access to finance and the issue of existing financial EU support systems
programmes need greater for SMEs, these tend to focus to a large extent on the supply side and neglect an analysis
coherence & coordination, of the needs and demand of SMEs. There are a number of support programmes in place
as well as clear definitions. and thus a wide offer, which are not always easily understandable or accessible to the
intended beneficiaries. An increase in the already rather vast offer can thus in some cases
be a part of the problem rather than the solution. In order to clarify and enhance the
outreach of the support measures of the EU (such as: CIP, EFRD, ESF, JEREMIE, JASMINE,
PROGRESS) and Member States which are addressing certain target groups, these target
groups should be clearly defined and communicated.
Microcredit
Target groups The savings banks’ activity in providing credits to small and micro enterprises comes
of EU microcredit naturally due to their mandate to contribute to their regions and be socially responsible
programmes should be institutions. In this regard, microcredit has in recent times been recognised as an
better differentiated and important tool for growth, jobs and for fighting financial exclusion among European
clearly defined. policymakers. However, there is a potential lack of coherence between the different
initiatives at the EU level regarding the target groups for the support envisaged. There is
no formal definition of the term “microcredit” although the European Commission has
suggested all loans not exceeding EUR 25,000 be considered microcredits. A more general
provision of the term is that offering microcredit means extending smaller loans to the poor
or to those who cannot access finance through ordinary banking structures. This can be
due to a lack of experience, collateral, or knowledge about the national legal and business
environment – for example in the case of migrant entrepreneurs. Therefore, ESBG advocates
for a clear definition of target groups of microcredit. Their specific hurdles for finance and
requirements for qualification differ widely, depending on whether sustainable and
commercially viable projects, start-ups or projects with a socio-political component are
addressed. Simple “labels”, such as migrants, the unemployed or women, are not useful
as they are not indicative for any decision on credit or business viability.
Microcredit should first be Tradition and longstanding experience of the local market is crucial for evaluating the
facilitated at national, viability of a business concept whatever its scope and size, and including small-scale
regional and local level. projects. Given the local dimension of microcredit, the EU focus should primarily be on
facilitating microcredit at the national, regional or local level – as close to the client as
possible – before looking at the creation of a single market for microcredit per se.
For example, this can be done through targeted cooperation between local banks and
available support organisations (such as economic chambers, promotion agencies,
microfinance institutions or start-up initiatives). In such a case, a solution in some
European markets could be for the latter to focus on providing support services, leaving
banks with the task of credit provision.
Risk, costs and consequences In addition, the increased risks and costs involved in microcredit activity need to be
of microcredit should be counteracted – for example through additional business support and accompaniment of
better addressed. the entrepreneur or through targeted support schemes where the maximisation of profit
is not the sole aim of the activity. Specific challenges for micro or start-up credits are in
some cases caused by a lack of quality of demand rather than by a lack of supply.
The aim must be to integrate clients with adequate potential into the general banking
system and not to transfer them to a second credit market, labelling them "non-
bankable" and thus stigmatising them.
168

169. ESBG has participated with great interest in the debate at the EU level on financial Financial institutions
education. Knowledge about financial matters is an important tool for creating a – especially savings banks –
successful enterprise. Many small business entities lack an understanding of basic are key providers in financial
financial services products, and most small enterprises cannot afford expensive education and advice to SMEs.
consultancy services. Although financial education is primarily the responsibility of
Member States, financial institutions can contribute as “educators”, both in various
schemes at the international, national or local level, and in the everyday meeting with
their SME clients. As the local partners of SMEs, the employees of savings banks often
take on the role of explaining and guiding SMEs in the financial services field and beyond
throughout their life cycle. Due to the higher risk that smaller entities face resulting from
a larger exposure to external risk factors, financial institutions can also play a role in
explaining the use of the risk management products on offer to SMEs. Savings banks
across Europe have operated in this spirit at the local level for more than a century and
used microcredit as a means to help entrepreneurs to integrate, or re-integrate into social
and economic life. Specific targeted schemes have developed within savings banks
focussing on increasing the level of financial literacy among European citizens and SMEs.
In this respect it is of utmost importance to recognize that clients whose lack of qualification EU microdrecit measures
as an entrepreneur or lack of a viable business idea are too big to be overcome by need proper eligibility
adequate support measures, should not be driven into debt through subsidized criteria for borrowers.
microcredit offers. Any EU support measures which allow national or regional managing
authorities to enter into uncalculated financing risks at lowest interest rates should therefore
be avoided since such unfair competition makes any existing attempts by private suppliers
to provide micro credits and corresponding support in commercial terms fruitless.
Throughout the discussions on microcredit at the EU level, ESBG has been actively involved JASMINE should target all
and continuously called for a more comprehensive approach towards microcredit. It is intermediaries providing
important to acknowledge that there is a wide-ranging variety of institutions offering microcredit.
microcredit in Europe. All have diverse aims and targets, but all actively contribute to
reaching a higher level of financial inclusion in Europe – whether they are banks, non-
banks or other types of institutions. Against this background, and in order to reap the full
benefits of microcredit in the form of growth and job creation, the support measures in
favour of microcredit, such as the recently launched JASMINE initiative should be targeted
at all intermediaries providing micro-credit.
It would also particularly be required to ensure that all microcredit services initiatives Follow-up actions &
throughout the EU, whatever the status or the legal structure of the provider involved, recommendations of EU
are able to develop optimally, and with a view to optimize the advantages brought to the microcredit programmes
beneficiaries. In this regard, specific attention will need to be given to the scope and focus need full attention.
of follow-up actions or recommendations eventually launched by the Commission and/or
the Member States. This will be all the more important for promoting the exchange of best
practices, especially between banks and non banks, as suggested by the Commission.
169

170. 170

171. 11. FINANCIAL INCLUSION
Key messages
n ESBG strongly advocates for a strict application of the principle of subsidiarity and for dealing with financial
inclusion and access to basic banking services at MS level.
n ESBG sees the need to avoid a national one-size-fits-all approach and to apply different approaches to the
problem of financial exclusion, tailored to each national, regional or even local context and traditions.
n The Commission can play a role in maintaining awareness on financial exclusion, facilitate the sharing of
information and best practices.
n Access to a bank account is crucial and requires a clear definition of a basic bank account.
n Financial inclusion and access to financial services can also be increased by offering specific adapted products and
services, adequate information, financial education and proximity banking as ESBG members are already providing.
n Initiatives to foster financial inclusion and enhance access to basic banking services should always be taken on
a voluntary basis and cannot be imposed on banks.
Setting the scene
During the past few years, the topic of financial inclusion has increasingly been in the
focus of discussions at the EU level. In May 2008, at the initiative of DG Employment,
Social Affairs and Equal Opportunities of the European Commission a report on "Financial
services provision and prevention of financial exclusion"209 was commissioned. The report
provided data on the levels, causes and consequences of financial exclusion in the
Member States, described the diversity of policy responses developed in different
Member States in the field of transaction banking services, credit and savings, and
proposed a series of potential policy responses to prevent financial exclusion of people
facing poverty or social exclusion.
Following a conference publishing this report and a commitment in the Single Market for
21st Century Europe210 to ensure that by a certain date nobody is denied access to a basic
bank account, DG Internal Market and Services together with DG Employment, Social Affairs
and Equal Opportunities of the European Commission launched a public consultation in
February 2009. The Consultation “Financial Inclusion: Ensuring Access to a Basic Bank
Account”211 described the levels, causes and consequences of financial exclusion in the EU.
209 Reseau Financement Alternatif. 2008. Financial Services Provision and Prevention of Financial Exclusion.
Report for the European Commission, DG Employment, Social Affairs and Equal Opportunities.
[http://ec.europa.eu/employment_social/spsi/docs/social_inclusion/2008/financial_exclusion_study_en.pdf].
Accessed July 2009
210 European Commission. 2007. Communication from the Commission to the European Parliament, the
Council, the European Economic and Social Committee and the Committee of the Regions, A Single Market
for 21st century Europe [COM(2007)724 final] SEC(2007) 1517 SEC(2007) 1518 SEC(2007) 1519 SEC(2007)
1520 SEC(2007) 1521, 20 November.
211 European Commission. 2009. Financial Inclusion. Ensuring Access to a Basic Bank Account Consultation
Document [MARKT/H3/MI D(2009), 6 February.
171

172. Interested parties were invited to comment on the need and format of possible measures,
proposed in four general alternative areas of action, namely 1) promoting and sharing
best practices; 2) encouraging self-regulation by the industry; 3) a soft law approach;
or 4) a regulatory approach.
ESBG views
Financial Inclusion - Principle of Subsidiarity
Promoting financial Savings banks are by tradition important promoters of financial inclusion of all citizens.
inclusion of all is a central The promotion of financial inclusion for all citizens is part of savings banks’ mission.
ESBG mission. Caring for the general interest of society is the savings banks’ initial purpose and is
an integral part of their identity, as a long term commitment towards meeting the
critical needs of society through their daily business. Therefore, ESBG considers that the
“bankarization” of citizens is not only desirable in terms of social stability avoiding
financial exclusion but is also of economic and financial importance as it enlarges the market
and the scope of potential customers. In addition, many ESBG members have introduced
specific, targeted schemes to ensure that also the most vulnerable parts of the population
have access to necessary basic financial services.212 ESBG welcomes the Commission’s aim
to encourage the further development of financial inclusion of all EU citizens. The debate
at the European level shows the growing awareness of parties involved.
The principle of Considering the important commitment of its members in the field of financial inclusion,
subsidiarity has to apply ESBG and its members strongly advocate for a strict application of the principle of
– financial exclusion subsidiarity. ESBG agrees with the aim of European policy makers to raise the level of
needs to be tackled at financial inclusion among all citizens. However, there is a need to deal with the fight
the national level. against financial exclusion first and foremost at the level of Member States. The specific
reasons for financial exclusion are manifold and differ widely from country to country due
to different cultural and historical backgrounds, and economic and social circumstances.
A lower level of wealth and higher levels of inequality in Member States are two main
reasons. Another important aspect is the issue of trust. A lack of trust in the stability and
accountability of the financial sector can have significant influence on consumers’ choice
to store money in cash. A clear distinction must also always be made between those
consumers who are financially excluded and those who, for some reason, choose not to
buy a certain product or who do not make appropriate use of the products available.
These diverse situations call for different approaches and subsequently different possible
solutions taken at the national level.
Avoid a one size-fits all The most suitable way of handling the problem of financial exclusion is therefore to have
approach: apply specific measures at national level in the countries where the problem of financial exclusion arises
tailored national, regional – tailored to each context and the traditions of each country. ESBG is convinced that
and local approaches. governments of Member States are the most suited to find remedies for possible problems in
accessing financial services depending on the situation in their national markets. In this
context, it is also important to recognize that circumstances may not only be national
but in many cases regional or even local in order to avoid taking an – ultimately futile –
one-size-fits-all approach.
212 Also see Annex 2, CSR Case Studies
172

173. In addition, it has to be stressed that financial exclusion is one element of the broader Financial exclusion should be
problem of social exclusion and therefore often closely linked to low income, age, addressed in the wider
education and status of ethnic minorities or migrants. It is thus not an isolated issue and context of social exclusion.
the effects of the exclusion will therefore also differ. In those markets where the problem
is clearly and almost exclusively related to socially excluded individuals, financial exclusion
might not be solved through additional efforts in the area of information, education,
access and availability of financial services and products. If the cause of the problem lies
with problems related to general social exclusion, a more holistic approach to the
problem should be taken. This would mean starting by addressing issues such as
employment, physical and mental health and housing. This does not exclude the
possibility of linking such efforts with the introduction or reintegration into the formal
financial system.
Access to Basic Banking Services
ESBG welcomes the Commission’s aim to encourage further developments of access to A clear definition of the
financial services to all EU citizens and residents. The access to a bank account is certainly coverage of a ‘basic bank
the most crucial part of financial inclusion. A clear definition of the coverage of such a account’ is necessary.
service is of utmost importance. For the purpose of responding to the Commission
consultation on “Financial Inclusion: Ensuring Access to a Basic Bank Account”, ESBG
defined the basic bank account as an account which enables the account holder to
receive a salary and/or social benefit, make a certain number of essential payments,
and withdraw cash. The basic bank account can also serve as a savings account or enable
the account holder to make deposits onto a savings account. Access to an overdraft,
a credit facility or a payments instrument including the granting of credit – e.g. a credit
card or a deferred debit card – are not considered part of the basic bank account.
In order to ensure and enhance access to basic banking services, ESBG is strongly against Financial inclusion needs
regulation. Applying the better regulation principle, there is no justification for an to be advocated, but not
intervention at the EU level in countries where financial exclusion is not an issue, and regulated.
neither self-regulation nor regulation should therefore be imposed on Member States.
As stated by the Commission in its Consultation on Access to a Basic Bank Account, only
2% of consumers do not have access at all. This does not evidence a distortion of the
internal market and therefore, no regulatory action at the European level is required.
However, ESBG sees the Commission playing a role in maintaining awareness on the
subject and facilitating the sharing of information and best practices but does neither
see room nor necessity for any regulatory measure for the access to a basic bank account
at the European level. Moreover, in order to objectively assess the current situation,
ESBG requests that the Commission balance the Eurobarometer findings used in the
consultation with national, regional and local market studies.
In addition, the existing national regulation in some Member States prove that still no Inititatives to to foster
complete coverage can be reached by legislative means. Therefore, initiatives in this field financial inclusion should
should always be taken on a voluntary level, and cannot be imposed on banks. always be voluntary.
Financial providers should by no means, be obliged to provide financial products or
services as this would interfere with the principle of contractual freedom, private
autonomy and the obligation of each provider to perform risk management. It would also
hamper the innovation of products and services, in particular in the markets where
citizens already have easy access to bank accounts. Besides, compulsory measures would
increase costs to the financial institution and result in an increase of fees or other costs
which would have most likely to be borne by customers.
173

174. Proximity banking
National governments, the financial industry and consumer oriented organisations have
already been very active in offering specific, targeted programmes and products to ensure
that also the most vulnerable parts of the population have access to necessary basic
financial services. ESBG and its member are convinced that access to financial services can
and should be increased in various ways, by offering specific products and services.
Financial institutions need to adapt their products and services, making them available
and accessible for all, through adequate information and through financial education and
by improving the level of financial literacy. ESBG members are committed to functioning
responsibly and to serving all strata of society. Through various schemes they target
particularly vulnerable groups, enabling them to obtain additional support in the form of
tailor-made products, services, information and financial education. This shows that ESBG
and its member have a longstanding experience to ensure that also the most vulnerable
parts of the population have access to necessary basic financial services.
Proximity banking is The concept of ensuring financial inclusion includes a wide range of activities next to
a success factor to enhance access to a basic banking services and financial education. Proximity banking is also an
financial inclusion. important means for increasing the level of financial inclusion. For many consumers, not
least the weaker groups in society, proximity is of crucial importance when choosing their
financial service provider. Support, accompaniment and explanations are necessary in
order for consumers to choose the right products and know how to use them correctly.
This aspect is becoming increasingly important, as product innovation moves at fast
speed and consumers are asked to take more and more responsibility for their personal
finances, not least regarding their own future pension provision. It has also been shown,
particularly in the new Member States, that the level of exclusion is higher in rural areas
than in larger cities. ESBG firmly believes that one of the most important success factors
when aiming for financial inclusion of all citizens is for the provider to remain close to the
client. In order to live up to this aim, ESBG members work through wide-reaching
networks, whether via branches or independent entities. This enables them to serve
consumers in cities as well as in more remote geographic areas and to provide all the
necessary support for their clients, tailored to each customer’s specific situation.
Thus, proximity banking is not always and exclusively related to less wealthy groups, but
also to offering financial services and products to consumers living in remote or low-
populated areas who would suffer from a lower level of proximity banking as costs for
access to finance would increase.
174

175. 12. FINANCIAL EDUCATION
Key messages
n Provision of financial education should be dealt with at the Member State level.
n All stakeholders have a responsibility to foster financial education including parents.
n Government and public institutions should provide policy orientation and raise awareness.
n Savings banks are involved in creating financial education programmes and schemes, and have the necessary
knowledge and expertise to share best practices.
Setting the scene
Consumer empowerment has been the focus of the European Commission in recent
initiatives targeting the retail financial services sector, such as the Green Paper on Retail
Financial Services213 and the Single Market Review214. Financial education is recognised
as one of the means for achieving a higher level of consumer confidence. It is not only
approached as an essential element of consumer protection and consumer information,
but also as a priority in the debate on access to finance and responsible lending. As a
consequence, the Commission adopted a Communication on Financial Education in
December 2007215, providing a number of recommendations to the EU Member States
on how to address the issue at the national level. In reaction to the Commission
Communication, the EU Finance Ministers concluded in May 2008 that raising public
awareness about financial issues is seen as being of particular importance as products
become more and more complex and consumers need to make an increasing number of
choices for their personal finance. In addition, the European Commission established the
Expert Group on Financial Education (EGFE)216 in 2008 which aims at promoting the
exchange of ideas, experiences and best practices.
The European Parliament for its part adopted a Report on “Protecting Consumers:
Improving consumer education and awareness on credit and finance”217 in November
2008, advocating for a stronger focus on the role of Member States instead of action at
the EU level, and on exchanges of best practices rather than legislation. In addition, the
European Commission launched the European Database for Financial Education (EDFE)218
in January 2009. It has been designed as a reference to numerous financial education
programmes offered by public or private institutions in the EU.
213 European Commission. 2007. Green Paper on Retail Financial Services in the Single Market [COM 2007 (226)
final], 30April.
214 European Commission. 2007. Communication from the Commission to the European Parliament, the
Council, the European Economic and Social Committee and the Committee of the Regions. A single market
for 21st century Europe [COM 2007 (724) final]. SEC(2007) 1517 SEC(2007) 1518 SEC(2007) 1519
SEC(2007) 1520 SEC(2007) 1521, 20 November; European Commission. 2008. Commission Staff Working
Document. The Single Market Review: one year on SEC 2008 (3064), 16 December.
215 European Commission. 2007 Communication from the Commission. Financial Education [COM(2007)808],
18 December.
216 European Commission. 2008. First Meeting of the Expert Group on Financial Education. National Strategies
for Financial Education. Report, 7 October.
217 European Parliament. 2008. European Parliament resolution of 18 November 2008 on protecting the
consumer: improving consumer education and awareness on credit and finance (2007/2288(INI)).
218 European Commission. 2007. European Database for Financial Education. Brussels [http://ec.europa.eu/
internal_market/fesis/index.cfm]. Accessed June 2009.
175

176. Financial education has been Ensuring a high level of financial literacy is a matter which has throughout history been
important throughout seen as an issue of great importance among savings banks across Europe. Savings banks play
savings banks’ history. a key role in educating people on finance and budget matters, far beyond their actual
clientele. Consumers’ lack of insight into and understanding of financial matters can be
detrimental for customers’ confidence and even to customers’ satisfaction. It is consequently
in the interest of all stakeholders to work together towards improving the situation.
Financial education is ESBG therefore considers that financial education is an important way to enable citizens
important to empower to make their own independent judgement as well as conscious choices on the products
citizens and prevent offered to them. Consumers need to have the skills to manage and use their money
over-indebtedness. wisely and adequately, and to understand the complex products and variety of services
that are offered. In developing these skills and enabling consumers to choose the
products and services that are best tailored to their specific needs, financial education
also plays an important role to prevent over-indebtedness and to integrate people who
are at risk of financial exclusion.
ESBG views
Provision of financial As financial institutions with a strong commitment to CSR, ESBG members welcome all
educations should be efforts to ensure that European consumers are knowledgeable and well-informed on
dealt with at national, financial matters. ESBG supports the European institutions’ initiative of placing financial
regional and local level. education high on the agenda and welcomes the current discussion on European level,
reflecting the importance of the topic. Nevertheless, ESBG is convinced that the provision
of financial education is mainly a matter for Member States and should be dealt with at
national level, regional and local level. This way, financial literacy schemes are able to take
into account the local specificities, such as culture, tradition and languages.
All stakeholders have In order to make financial education an efficient and sustainable tool to empower
a responsibility to foster the consumer, all interested stakeholders have to be involved. Member States, national
financial education. governments, education bodies and authorities, financial regulators and institutions,
as well as other stakeholders such as parents, share the responsibility to foster financial
education amongst Europe’s citizens, helping them to have a better knowledge of
financial issues and to make informed choices. Governments and public institutions have
the responsibility to give the policy orientations, to provide the overall support to financial
education strategies, to raise awareness on potential financial needs and risks, and to
encourage people to anticipate and prevent personal financial difficulties. Financial institutions,
including savings banks, are involved in delivering financial education programmes and
schemes to increase the level of financial literacy.
Savings banks should be Savings banks are close to their clients and well aware of the areas where the lack of
involved in drafting financial knowledge is most present. They can widely contribute to financial education throughout
education programmes. citizens’ lives, and savings banks play a key role all over Europe in educating people on
specific money matters. ESBG members have traditionally been involved to a large extent
in creating and participating in various financial literacy schemes at the local level, tailoring
the needs of the target groups and covering literacy programmes in primary, secondary
and higher education.219 They therefore have a significant amount of experience to share
as best practises with other actors. Based on the knowledge of their clients’ needs,
savings banks can efficiently bring their expertise to financial education campaigns and
provide technical input for the development of targeted projects focusing on consumer’s
life planning aspects – and they can do this successfully on a voluntary basis.
219 Please also see Annex 2 CSR Case Studies
176

177. Against this background, the ESBG welcomes the two practical initiatives on European
level to encourage the sharing of experiences and best practices which were outlined
in the Commission’s 2007 Communication on Financial Education: the Expert Group on
Financial Education (EGFE) to which two ESBG members220 participate and the European
Database for Financial Education (EDFE) in which a number of schemes initiated and
carried out by ESBG members are presented in the database including the European
Stock Market Learning221 initiative – a multinational financial education programme for
students which is a joint project of savings banks across Europe,. The latter has received
great attention at the EU level for its interdisciplinary approach, involving linguistic,
economic, mathematical and cultural science.
220 European Commission. 2008. Members of the Expert Group on Financial Education. National Strategies for
Financial Education, Brussels [http://ec.europa.eu/internal_market/finservices-retail/docs/capability/
members_en.pdf]. Accessed June 2009.
221 Deutscher Sparkassen Verlag. 2009. Stock Market Learning, Stuttgart, http://www.planspiel-boerse.com/
toplevel/englisch/index.htm]. Accessed June 2009.
177

178. 178

179. CONCLUDING REMARKS
While this report was being developed, the financial world was changing dramatically. This report can therefore not be a summary
of conclusions reached in important debates or an attempt to capture the status quo in all different discussions. Rather, we hope
that it will contribute to the ongoing debates and shape them as they move forward. We also hope that the parameters
developed here will set future standards for those discussions which currently appear suspended. Regarding our concrete
recommendations on retail banking policy, we believe that now is the best time to give them their due consideration and to
integrate them into the ongoing regulatory efforts and into current and upcoming assessments on the need and scope for future
regulation in relevant areas.
Given the richness and diversity of the topics addressed, it is hard to find one concluding and summarising closing line. Also it is
difficult to make projections for the future, since, even at the time of writing, many ‘fashionable wisdoms’ and political priorities
on retail banking and retail banking sector integration are being overthrown. Yet there are three central themes to our
recommendations which cover a wide range of fields: first, general banking ethics and principles for corrective policy measures,
second, economic parameters and sector specificities as they concern the wider vision of an integrated retail banking sector, and
third, detailed and concrete recommendations in specific areas of retail banking:
1) Consequences of the crisis: financial stability as a new focusing point for Europe?
The experience of the current financial and economic crisis opened the eyes of industry participants and policy makers alike to
the risks associated with misguided priorities. Now, globally and at the EU level, efforts are being made to take necessary actions
to address the lessons learned and to increase the stability of financial systems. This is an urgent task, which still requires a
judicious and circumspect approach. Yet, a truly comprehensive approach also needs to include a differentiated discussion of
‘what has worked’ and ‘what has not worked’ in the banking sector. As a result, including at the EU level, expectations for banks
should be built based upon their role in the real economy; they should not trigger ambitious and unrealistic politically motivated
goals. Looking at the efforts already underway, the current revisions to EU regulation and supervision are timely and entail many
important insights. Nevertheless policy makers need to be aware of the risks implied by undue haste in taking decisive action.
In order to ensure future stability, the most convincing way lies in good and well thought through regulation which is not subject
to short-termism, whether in its goals or in its implementation.
2) European sector integration needs a reality-based approach
The European Union should not (neither now nor in the future) set itself the task to reinvent or remodel Europe’s banking sector.
Rather, based on the existing building blocks and by making the best use of their specific strengths, policy makers should reflect
on the best possible outcome - keeping in mind that the existing business models have proven their validity and adaptability to
the circumstances in the markets they serve. Traditionally, banking is an economic activity which takes a long time to build, and
which, by its very nature, combines dynamic reactions to changes in demand and economic circumstances with a long-term
outlook and continuity in strategies. In contrast, politically fashionable views on banking generally alter more frequently. A reality-
based policy approach, however, needs to bear in mind that the clear benefits of a pluralistic banking sector survive all changes
in political trends.
179

180. 3) Europe needs a targeted approach to regulation according to the principles of proportionality and
compatibility with national circumstances
Regulation which imposes undue burden or hampers banks’ competitiveness without any clear general benefits is not good
regulation. EU-level regulation is of course often needed for market functioning and for market integration. Yet, it needs to be
consistent, compatible with the different market environments, and concentrated on those areas where it is necessary and
generates added value. These are general principles, but they particularly apply to retail banking. Not only is retail banking a
central economic activity, it is also thoroughly imbedded in the economy, covers various important activities, and concerns a wide
range of stakeholders. In addition, the diversity within the retail banking sector, as well as the diversity of national practices and
environments, is greater than in many other industries. As a result – at least theoretically – the scope for EU level intervention is
wide, but so also is the risk for regulatory action to turn out conflicting or biased.
These central themes carry ESBG’s consistent and continuous messages for the relevant discussions on the European retail banking
sector. Looking ahead, it is our hope that they will be part of the future debates on European retail banking and help set a trend
for the way forward.
180

181. ANNEX 1
Statistics
Part 1 – Structural and financial data
Table 1: ESBG membership base
Number of credit
Country ESBG member Institution(s) represented institutions (2007)
Czech Republic Ceska Sporitelna AS 1
Denmark 3 S Group Independent savings banks 11
Germany Deutscher Sparkassen-und Giroverband e.V. (DSGV) Members of Sparkassen Finanzgruppe 453
Greece Greek Post Office Savings Bank 1
Spain Confederación Española de Cajas de Ahorros (CECA) Independent savings banks 45
France Groupe Caisse d'Epargne Caisse Nationale des Caisses d'Epargne 21
Fédération Nationale des Caisses d'Epargne
Italy Assocciazione di Fondazioni e di Casse Italian foundations and savings banks 45
di Risparmio Italiane (ACRI)
Latvia Latvijas Krajbanka 1
Luxembourg Banque et Caisse d'Epargne et de l'Etat (BCEE) 1
Hungary Országos Takarékpénztár és Kereskedelmi Bank Rt. (OTP) 1
Malta Bank of Valletta Plc 1
Netherlands SNS Reaal 1
Austria Österreichischer Sparkassenverband Erste Group and regional savings banks 56
Poland Powszechna Kasa Oszczednosci Bank Polski SA (PKO) 1
Portugal Caixa Económica da Misericórdia de Angra do Heroísmo (CEMAH) 3
Montepio
Caixa Geral de Depósitos
Romania Casa de Economii si Consemnatiuni 1
Slovakia Slovenska Sporitelna AS 1
Finland Säästöpankkiliitto Independent regional savings banks 38
Sweden Swedbank Swedbank and independent savings banks 64
United Kingdom Lloyds TSB Bank plc 1
Croatia Hrvatska poštanska banka d.d. (HPB) (Croatia Postal Bank) 1
Iceland Samband Islenskra Sparisjóda (Icelandic Savings
Banks Association) Independent savings banks 19
Norway Sparebankforeningen i Norge Independent savings banks 122
Turkey VakifBank, Türkkiye Vakiflar Bankasi TAO 1
Note: Throughout this annex, ESBG members are presented according to the names of their countries (following the order used by the European Central Bank).
181

182. Table 2: Number of credit institutions in the EU, 1997-2007
Change Change
1997-2007 2005-2007
1997 1999 2001 2003 2005 2007 (%) (%)
Belgium 131 117 112 108 100 110 -16.03 9.09
Bulgaria 35 34 29 n/a -17.24
Czech Republic 119 77 56 56 n/a 0.00
Denmark 213 210 203 203 197 189 -11.27 -4.23
Germany 3,420 2,992 2,526 2,225 2,089 2,026 -40.76 -3.10
Estonia 7 7 11 15 n/a 26.66
Ireland 71 81 88 80 78 81 14.08 3.70
Greece 55 57 61 59 62 63 14.55 1.58
Spain 416 387 367 348 348 357 -14.18 2.52
France 1,258 1,159 1,050 939 854 808 -35.77 -5.69
Italy 909 890 843 801 792 821 -9.68 3.53
Cyprus 406 408 391 215 n/a -81.86
Latvia 39 23 25 31 n/a 19.35
Lithuania 54 71 78 80 n/a 2.50
Luxembourg 215 211 194 169 155 156 -27.44 0.64
Hungary 240 222 214 206 n/a -3.88
Malta 17 16 19 22 n/a 13.63
Netherlands 648 616 561 481 401 341 -47.38 -17.59
Austria 928 875 836 814 818 803 -13.47 -1.86
Poland 758 660 730 718 n/a -1.67
Portugal 238 224 212 200 186 175 -26.47 -6.28
Romania 39 40 42 n/a 4.76
Slovenia 69 33 25 27 n/a 7.40
Slovakia 21 22 23 26 n/a 11.53
Finland 348 346 369 366 363 360 3.45 -0.83
Sweden 237 148 149 222 200 201 -15.19 0.49
United Kingdom 537 496 452 426 400 390 -27.37 -2.56
EMU 13 (12) 8637 7954 7213 6623 6271 6128
EU 27 (25, 15) 9624 8872 9747 9054 8689 8348
Source: ECB Report on EU Banking Structures (November 2004, October 2008).
Note: For EU / EMU, the changes between 1997-2007 and 2005-2007 have not been calculated, as in both cases enlargements took place during the period under
consideration, altering the composition of the sample. This will apply to all tables in the annex where relevant.
182

183. Table 3A: Total assets of EU credit institutions, EUR millions, 1997-2007
1997 1999 2001 2003 2005 2007
Belgium 661,487 714,467 776,173 828,557 1,055,270 1,297,788
Bulgaria 9,254 17,447 31,238
Czech Republic 78,188 78,004 100,902 140,004
Denmark 314,739 382,589 454,328 568,848 746,246 977,970
Germany 4,774,748 5,656,443 6,268,700 6,393,503 6,826,534 7,562,431
Estonia 4,372 6,314 11,876 20,603
Ireland 184,808 302,753 422,106 575,168 941,909 1,337,357
Greece 114,628 162,115 202,736 213,171 281,066 383,293
Spain 844,807 1,006,157 1,247,998 1,502,861 2,149,456 2,945,262
France 3,026,370 3,402,082 3,768,943 3,998,554 5,073,388 6,682,335
Italy 1,602,929 1,628,804 1,851,990 2,125,366 2,509,436 3,331,830
Cyprus 42,268 41,890 60,753 91,141
Latvia 7,279 8,482 15,727 30,816
Lithuania 4,361 6,453 13,162 23,817
Luxembourg 516,683 598,536 721,001 655,971 792,418 915,448
Hungary 38,433 n/a 78,289 108,504
Malta 15,762 17,901 27,195 37,808
Netherlands 769,034 983,664 1,265,906 1,473,939 1,695,325 2,195,020
Austria 411,520 486,709 573,384 586,459 721,159 890,747
Poland 133,476 112,174 163,421 236,008
Portugal 222,244 302,824 298,428 348,691 360,190 440,144
Romania 15,000 35,400 72,095
Slovenia 17,782 21,541 30,135 43,493
Slovakia 21,446 23,751 37,834 50,318
Finland 104,969 119,344 162,416 185,846 234,520 287,716
Sweden 389,130 390,628 452,289 519,259 653,176 845,958
United Kingdom 3,851,807 4,501,190 5,829,766 6,288,193 8,526,509 10,093,134
EMU 13 (12) 13,234,227 15,363,898 17,560,781 18,909,627 22,670,806 28,312,864
EU 27 (25, 15) 17,789,903 20,638,305 24,660,532 26,605,149 33,158,743 41,072,276
Source: ECB Report on EU Banking Structures (November 2004, October 2006, October 2008).
183

184. Table 3B: Total assets of ESBG members, EUR millions, 1997-2007
1997 1999 2001 2003 2005 2007
Czech Republic n/a 10,484 14,775 17,297 22,561 30,861
Denmark n/a 1,984 3,038 3,765 5,778 9,138
Germany 1,702,815 2,070,515 2,254,906 2,345,822 2,379,075 2,632,000
Greece 9,700 9,589 10,612 10,062 11,564 13,182
Spain 278,542 353,223 453,030 556,814 808,536 1,155,001
France 194,486 248,751 285,896 380,675 594,132 601,454
Italy 271,522 290,932 165,541 128,472 140,603 171,487
Latvia 127 174 281 287 349 961
Luxembourg 24,923 29,504 35,644 36,336 39,139 39,421
Hungary 6,420 6,939 8,390 10,335 14,288 20,081
Malta 2,407 3,272 4,303 4,693 4,924 5,388
Netherlands 23,051 32,527 43,761 53,058 68,088 70,584
Austria n/a 191,751 203,214 110,210 127,029 150,351
Poland 11,821 13,955 21,876 18,101 23,138 29,770
Portugal 45,415 62,022 76,793 86,517 100,683 120,261
Romania 837 1,416 1,062 1,033 1,545 2,851
Slovakia 4,432 3,905 4,661 5,087 6,839 9,107
Finland 4,485 5,773 6,971 447 5,358 6,109
Sweden 76,977 97,169 101,355 110,910 126,003 186,468
United Kingdom 236,093 281,165 379,312 362,763 452,658 494,397
Croatia 707 984 1,987
Iceland 880 1,585 1,671 2,030 4,361 6,777
Norway 44,912 60,201 78,658 91,200 180,338 246,251
Turkey 10,462 21,245 24,135
Total ESBG n/a 3,776,836 4,155,750 4,347,083 5,139,218 6,028,022
Source: Figures provided by ESBG members, or from annual reports.
184

185. Table 4A: Number of employees in the EU banking sector, 1997-2007
Percentage work
force employed
by banking sector
1997 1999 2001 2003 2005 2007 (2007)
Belgium 76,603 76,288 76,104 73,553 69,481 67,080 1.54
Bulgaria n/a 22,945 30,571 0.82
Czech Republic 4,299 39,658 37,943 40,037 0.77
Denmark 48,049 47,974 48,538 46,443 47,579 49,644 1.71
Germany 765,850 772,400 772,100 725,550 705,000 690,900 1.74
Estonia 3,949 4,280 5,029 6,319 0.99
Ireland n/a 37,677 40,928 35,658 37,702 41,865 1.98
Greece 56,722 58,606 59,624 61,074 61,295 64,713 1.38
Spain 245,916 243,509 244,781 243,460 252,831 275,506 1.34
France 414,093 408,571 415,979 420,291 434,354 478,615 1.86
Italy 343,005 340,470 343,814 337,689 335,726 341,538 1.36
Cyprus 10,115 10,480 10,799 11,286 2.93
Latvia 8,172 8,903 10,477 12,826 1.15
Lithuania 8,796 7,557 7,637 10,303 0.67
Luxembourg 19,135 21,197 23,894 22,513 23,224 26,139 7.84
Hungary 34,054 35,725 37,527 41,905 1.00
Malta 3,584 3,416 3,383 3,756 2.36
Netherlands 111,487 124,309 131,420 119,857 120,165 114,424 1.33
Austria 74,321 73,511 74,606 73,308 75,303 77,731 1.92
Poland 168,529 154,569 158,130 173,955 1.15
Portugal 64,554 61,319 55,538 53,931 54,035 60,975 1.19
Romania 46,567 52,452 66,039 0.71
Slovenia 11,578 11,816 11,726 12,051 1.25
Slovakia 20,118 19,812 19,773 19,779 0.91
Finland 26,816 24,721 26,733 26,668 23,644 25,025 1.00
Sweden 43,197 43,222 42,001 39,456 44,943 44,056 0.98
United Kingdom 455,422 486,799 506,278 495,173 461,654 n/a n/a
Source: ECB Report on EU Banking Structures and ECB labour market indicators (November 2004, October 2008).
Notes: Last column: ESBG calculations based on the ECB Report on EU Banking Structures and ECB labour market indicators, for total workforce figures (October 2008).
185

186. Table 4B: Total Number of employees of ESBG members, 1997-2007
1997 1999 2001 2003 2005 2007
Czech Republic 17,522 16,410 14,539 12,786 11,406 10,048
Denmark 981 981 1,143 1,381 n/a 2,026
Germany 321,084 322,953 325,684 312,406 301,004 293,538
Greece 1,312 1,271 1,280 1,258 1,220 1,260
Spain 90,853 98,372 106,684 110,243 117,890 131,548
France 39,400 42,000 44,000 44,700 54,400 51,200
Italy 75,014 72,411 49,253 34,177 34,111 34,928
Latvia 1,876 1,498 1,218 943 874 949
Luxembourg 1,652 1,627 1,614 1,602 1,581 1,602
Hungary 12,161 8,497 8,293 7,980 7,999 8,494
Malta 1,578 1,601 1,627 1,555 1,492 1,479
Netherlands 4,963 5,603 5,860 5,536 5,336 3,223
Austria 24,294 24,096 24,629 16,164 12,949 13,136
Poland 41,654 39,998 38,341 36,547 33,479 29,000
Portugal 18,987 24,511 20,318 21,445 23,706 16,637
Romania 12,630 13,206 11,180 9,497 7,224 6,801
Slovakia 6,317 6,818 5,861 5,283 4,901 4,728
Finland 1,768 1,892 1,979 1,454 1,106 1,178
Sweden 12,454 12,791 16,068 15,366 16,148 22,148
United Kingdom 82,580 76,056 81,400 71,609 70,000 70,000
Croatia 186 267 446 n/a n/a n/a
Iceland 475 621 710 857 919 875
Norway 10,719 10,813 11,178 10,876 15,582 18,311
Turkey n/a n/a n/a 7,341 7,164 8,557
Total ESBG 780,460 784,293 773,305 731,006 730,491 714,154
Source: Figures provided by ESBG members.
186

187. Table 5A: Number of local units (branches) of credit institutions in the EU, 1997-2007
Change
1997 1999 2001 2003 2005 2007 1997-2007 (%)
Belgium 7,358 6,982 6,168 4,989 4,564 4,425 -39.86
Bulgaria n/a 5,629 5,827 3.51
Czech Republic* 1,751 1,670 1,825 1,862 6.34
Denmark 2,283 2,294 2,376 2,118 2,112 2,194 -3.90
Germany 63,186 58,546 53,931 47,244 44,044 39,777 -37.05
Estonia* 210 197 230 266 26.67
Ireland 942 977 970 924 910 1,158 22.93
Greece 2,510 2,850 3,134 3,300 3,576 3,850 53.39
Spain 38,039 39,376 39,012 39,750 41,979 45,500 19.61
France 25,464 25,501 26,049 25,789 27,075 39,560 55.36
Italy 25,601 27,134 29,267 30,501 31,498 33,227 29.79
Cyprus* 1,009 983 951 921 -8.72
Latvia* 590 581 586 682 15.59
Lithuania** 156 723 822 970 34.16
Luxembourg 318 345 274 269 246 235 -26.10
Hungary * 2,950 3,003 3,122 3,387 14.81
Malta* 102 104 100 104 1.96
Netherlands 6,800 6,258 4,720 3,883 3,748 3,604 -47.00
Austria 4,691 4,589 4,561 4,395 4,300 4,266 -9.06
Poland** 4,080 8,688 10,074 11,607 33.59
Portugal 4,746 5,401 5,534 5,397 5,427 6,030 27.05
Romania 3,387 3,533 6,340 87.18
Slovenia* 717 720 693 711 -0.84
Slovakia* 1,052 1,057 1,142 1,169 11.12
Finland 1,289 1,193 1,257 1,564 1,616 1,638 27.08
Sweden 2,521 2,140 1,986 1,906 1,910 1,846 -26.78
United Kingdom 16,344 15,387 14,554 14,186 13,694 12,425 -23.98
EMU 13 (12) 180,944 179,152 175,191 168,730 169,644 183,981
EU 27 (25, 15) 202,092 198,973 206,724 206,956 214,925 233,581
Source: ECB Report on EU Banking Structures (November 2004, October 2008).
Notes: For countries marked with * the % change was calculated for 2001-2007.
For countries marked with ** the % change was calculated for 2003-2007, due to changes in the ECB definition of the term “local units” for those countries.
For Romania and Bulgaria the % change was calculated for the longest period available.
187

188. Table 5B: Number of domestic local units (branches) of ESBG members, 1997-2007
Approximate share
of total
domestic branches
1997 1999 2001 2003 2005 2007 2007 (%)
Czech Republic 1,127 876 684 667 647 636 34.16
Denmark n/a 68 99 116 140 154 7.02
Germany 20,323 20,032 18,884 17,646 16,775 15,932 40.05
Greece 128 132 135 135 136 141 3.66
Spain 16,647 18,350 19,842 20,893 22,445 24,591 54.53
France 4,200 4,715 4,740 4,700 4,337 4,770 17.24
Italy 6,047 5,879 4,437 3,540 3,816 4,050 12.19
Latvia 326 188 119 79 73 107 15.69
Luxembourg 97 96 89 89 87 75 31.91
Hungary 415 440 424 432 377 388 11.46
Malta n/a n/a 58 48 47 46 44.23
Netherlands 303 278 201 529 593 873 24.22
Austria 1,466 1,421 1,445 1,112 1,063 1,010 23.68
Poland 6,979 6,414 5,951 4,812 3,761 3,539 10.67
Portugal 1,117 1,409 1,390 1,408 1,411 1,092 18.10
Romania 2,166 1,825 1,637 1,511 1,406 1,404 22.14
Slovakia 646 346 441 339 302 273 20.85
Finland 246 257 258 200 210 173 10.56
Sweden 1,077 818 951 821 764 724 24.86
United Kingdom 2,900 2,500 2,300 2,200 2,100 2,000 16.09
Croatia n/a 1,116 1,132 n/a
Iceland 51 55 62 n/a 72 63 n/a
Norway 1,012 999 972 920 943 1,260 n/a
Turkey 294 302 360 n/a
Total ESBG 67,273 67,098 65,119 62,491 62,923 63,701
Source: Figures provided by ESBG members.
Notes: For Denmark, the change in the number of domestic units has been calculated for the period 1999-2007.
For Malta, the change in the number of domestic units has been calculated for the period 2001-2007.
For Croatia, the change in the number of domestic units has been calculated for the period 2005-2007.
For Turkey, the change in the number of domestic units has been calculated for the period 2003-2007.
188

189. Table 6A: Number of ATMs in the EU, 1997-2007
1997 1999 2001 2003 2005 2007
Belgium 4,986 6,229 11,393 12,495 13,543 15,446
Bulgaria 642 1,222 2,779 4,535
Czech Republic 1,923 2,555 3,005 3,357
Denmark 2,387 2,641 2,763 2,873 3,001 3,129
Germany 41,397 46,200 49,620 51,129 53,361 68,321
Estonia 680 747 796 927
Ireland 1,039 1,120 1,335 2,278 2,944 3,240
Greece 2,190 3,054 4,377 5,468 6,155 7,315
Spain 33,940 41,871 46,990 51,978 56,333 60,588
France 27,077 32,445 36,912 41,988 47,827 52,168
Italy 25,546 30,203 36,621 39,059 40,577 48,113
Cyprus 311 367 444 556
Latvia 791 868 877 1,147
Lithuania 689 994 1,056 1,334
Luxembourg 233 310 355 387 405 445
Hungary 2,544 2,975 3,531 4,286
Malta 139 149 154 162
Netherlands 6,397 6,673 7,142 7,556 7,446 8,546
Austria 4,302 5,340 6,622 7,499 7,970 8,105
Poland 6,476 7,575 8,776 11,542
Portugal 6,280 8,850 10,524 11,985 13,841 15,860
Romania 1,290 2,593 4,354 7,452
Slovenia 1,027 1,240 1,490 1,643
Slovakia 1,182 1,505 1,854 2,166
Finland 2,285 2,181 4,332 3,955 3,385 3,218
Sweden 2,370 2,580 2,567 2,676 2,800 2,809
United Kingdom 23,193 27,379 36,666 46,461 58,286 63,420
Source: For 1997-1999 ESBG research (The Future of European Retail Banking Markets, June 2003).
For 2001-2007, ECB Payment Statistics (from Statistical Data Warehouse).
189

190. Table 6B: Number of ATMs of ESBG members, 1997-2007
Approximate domestic
market share
1997 1999 2001 2003 2005 2007 2007 (%)
Czech Republic 822 870 954 1,067 1,076 1,124 33.48%
Denmark n/a 65 84 98 124 n/a n/a
Germany 16,700 18,700 20,600 21,100 21,060 24,620 36.04%
Greece 0 0 0 55 127 181 2.47%
Spain 18,985 23,381 26,244 29,165 31,703 35,034 57.82%
France 4,400 4,800 5,100 5,275 5,920 7,212 13.82%
Italy 6,239 n/a n/a n/a n/a n/a n/a
Latvia 4 18 117 129 132 117 10.20%
Luxembourg 73 120 126 129 134 134 30.11%
Hungary 661 1,019 1,091 1,305 1,500 1,981 46.22%
Malta n/a n/a 65 70 67 73 45.06%
Netherlands n/a 360 350 344 300 513 6.00%
Austria n/a n/a 2,790 1,591 1,562 n/a n/a
Poland 198 763 1,478 1,734 1,862 2,333 20.21%
Portugal 1,792 2,622 3,693 3,528 4,875 5,271 33.23%
Romania 0 0 0 0 138 597 8.01%
Slovakia 322 356 406 446 519 617 28.49%
*Finland 208 221 219 135 n/a n/a n/a
Sweden 1,176 1,466 1,932 2,097 2,147 2,562 30.79%
United Kingdom n/a n/a 4,300 4,220 4,197 4,100 6.46%
Croatia n/a 137 192 n/a
Iceland n/a n/a 89 91 87 87 n/a
Norway n/a n/a n/a 1,050 2,184 2,272 n/a
Turkey 1,636 1,820 1,953 n/a
Source: Figures provided by ESBG members or collected from annual reports.
Note: *In Finland banks use a common ATM-network called Otto, since 2005.
190

191. Table 7: ESBG members in context of their national markets, 2007
Number of ATMs located
Domestic local units (branches), Employees in the banking sector, in the country,
per million inhabitants per million inhabitants per million inhabitants
Total ESBG Total ESBG Total ESBG
domestic market member domestic market member domestic market member
Czech Republic 181.0 61.8 3,891.9 976.7 326.3 109.3
Denmark 402.8 28.3 9,113.9 371.9 574.4 n/a
Germany 483.2 193.5 8,393.4 3,566.0 830.0 299.1
Greece 344.6 12.6 5,792.6 112.8 654.8 16.2
Spain 1,023.1 552.9 6,194.7 2,957.8 1,362.3 787.7
France 624.1 75.2 7,550.1 807.7 822.9 113.8
Italy 561.9 68.5 5,775.9 590.7 813.7 n/a
Latvia 299.0 46.9 5,622.2 416.0 502.8 51.3
Luxembourg 493.5 157.5 54,892.3 3,364.2 934.5 281.4
Hungary 336.5 38.5 4,163.0 843.8 425.8 196.8
Malta 255.0 112.8 9,210.2 3,626.7 397.2 179.0
Netherlands 220.3 53.4 6,995.0 197.0 522.4 31.4
Austria 514.0 121.7 9,366.4 1,582.9 976.6 n/a
Poland 304.4 92.8 4,562.7 760.6 302.7 61.2
Portugal 568.9 103.0 5,752.8 1,569.7 1,496.4 497.3
Romania 294.0 65.1 3,062.3 315.4 345.6 27.7
Slovakia 216.7 50.6 3,667.1 876.6 401.6 114.4
Finland 310.4 32.8 4,742.3 223.2 609.8 n/a
Sweden 202.6 79.4 4,834.3 684.3 308.2 94.9
United Kingdom 204.3 32.9 n/a 1,249.7 1,042.8 67.4
Croatia* 254.9 n/a 43.2
Iceland* 204.8 2,843.9 282.8
Norway* 269.2 3,911.7 485.4
Turkey* 5.2 122.8 28.0
Source: ESBG calculations based on ECB Report on EU Banking Structures (October 2008), ECB Payment Statistics (from Statistical Data Warehouse), figures provided
by ESBG members and Eurostat figures (for total population) (updated 15 December 2008, extracted 4 February 2009).
Note: countries marked with " * " are not part of the EU.
191

192. Table 8: Market shares (%) of ESBG members, 2007
Residential
Non-bank deposits Non-bank loans Consumer credit mortgage loans
Czech Republic 23.6 23.0 53.9 25.7
Denmark n/a n/a n/a n/a
Germany 32.1 21.9 28.1 28.7
Greece 5.8 3.5 9.0 6.7
Spain 50.1 47.5 34.4 57.4
France n/a n/a 6.6 15.3
Italy n/a n/a n/a n/a
Latvia 5.7 2.0 4.9 2.1
Luxembourg n/a n/a n/a n/a
Hungary* 24.1 19.1 24.8 36.7
Malta** 55.0 42.8 47.5
Netherlands 8.3 n/a n/a 7.4
Austria 18.1 16.8 n/a 18.0
Poland n/a 42.6 n/a 29.1
Portugal*** 32.4 26.1 11.4 35.9
Romania n/a n/a n/a n/a
Slovakia n/a n/a n/a n/a
Finland 5.3 3.2 3.3 6.1
Sweden 26.0 26.0 n/a 30.0
United Kingdom**** 7.0 n/a 14.0 8.0
Croatia 5.6 3.6 n/a 0.3
Iceland 6.2 4.6 27.9 17.7
Norway 67.6 64.2 n/a 74.0
Turkey 8.2 8.6 8.5 7.7
Source: Figures from ESBG members, and ESBG calculations based on figures from ESBG members and the ECB for aggregated Member States figures (EU Banking
Structures, October 2008).
Notes: * Hungarian members of the OTP Group.
** Bank of Valetta discloses both consumer credit and residential mortgages together.
*** Added market shares of Caixa Geral de Depositos and Montepio.
**** The categories of market share for Lloyds TSB are the following: savings deposits (as a proxy for non-bank deposits), personal loans (as a proxy for
consumer credit) and mortgages (as a proxy for residential mortgage loans).
192

193. Table 9A: Non-bank deposits as a percentage of total assets in the EU, 1997-2007
1997 1999 2001 2003 2005 2007
Belgium 34.5 40.4 42.0 44.8 43.8 39.5
Bulgaria n/a 64.3 63.5
Czech Republic 67.5 66.9 66.4
Denmark 69.9 67.6 19.4 18.8 19.2 18.5
Germany 40.9 38.6 38.0 38.3 38.0 38.1
Estonia 54.1 50.9 44.1
Ireland 35.0 32.6 31.1 28.6 25.1 24.5
Greece 70.4 62.9 67.0 65.7 66.7 64.8
Spain 51.7 52.2 56.7 54.5 50.4 51.2
France 29.4 27.8 27.9 30.0 27.0 23.6
Italy 38.9 37.9 36.8 36.1 34.8 33.7
Cyprus 67.2 62.7 57.6
Latvia 31.2 56.7 46.7
Lithuania 63.4 59.2 48.9
Luxembourg 40.0 31.6 30.1 31.6 30.5 32.3
Hungary n/a 52.6 47.1
Malta 45.7 41.3 37.1
Netherlands 44.7 41.1 41.5 38.7 40.3 40.0
Austria 41.1 38.5 36.7 38.3 35.2 33.8
Poland 64.2 64.8 62.4
Portugal 45.4 39.7 45.0 39.9 45.5 43.8
Romania n/a 61.1 53.6
Slovenia 64.6 53.2 45.6
Slovakia n/a 57.9 62.5
Finland 56.2 53.5 42.5 41.3 36.8 35.2
Sweden 27.3 25.5 25.0 24.4 23.5 22.4
United Kingdom 32.8 33.4 31.8 54.0 53.7 58.0
Source: ESBG calculations based on information on total assets, and information on non-bank deposits from the ECB Report on EU Banking Structures (November 2004,
October 2008).
193

194. Table 9B: Non-bank deposits as a percentage of total assets of ESBG members, 1997-2007
1997 1999 2001 2003 2005 2007
Czech Republic n/a 84.0 79.5 77.4 74.0 72.0
Denmark n/a 70.1 69.4 67.2 66.0 50.0
Germany 44.4 41.7 41.2 42.1 42.0 39.8
Greece 85.5 83.2 84.3 88.4 86.0 84.8
Spain 78.9 75.7 77.1 80.6 67.0 63.0
France 81.8 63.5 56.8 47.6 37.0 30.4
Italy 60.2 61.7 69.0 76.2 76.0 73.0
Latvia 88.3 80.3 79.1 75.5 81.0 87.3
Luxembourg 53.7 40.9 40.8 44.0 43.0 48.9
Hungary 85.6 86.6 87.6 82.9 70.0 59.0
Malta 79.2 74.1 71.4 71.7 71.0 74.2
Netherlands 45.9 40.3 34.2 33.1 29.0 38.0
Austria 42.0 32.9 33.2 36.8 34.0 37.0
Poland 88.0 90.6 86.9 84.8 84.0 79.0
Portugal 74.0 70.5 65.1 61.1 57.6 44.9
Romania 63.7 81.5 18.6 83.2 86.0 80.6
Slovakia 89.0 85.7 85.6 89.0 69.0 75.0
Finland 80.4 76.1 71.0 83.7 84.0 82.0
Sweden 32.5 25.3 25.8 28.3 25.0 33.0
United Kingdom 54.1 52.4 46.1 46.2 42.0 44.3
Croatia 80.6 69.0 70.0
Iceland 60.9 52.2 50.1 58.9 44.0 39.6
Norway 64.2 58.9 56.4 55.4 52.0 47.0
Turkey 71.0 67.0 n/a
Source: ESBG calculations based on information provided by ESBG members and from annual reports.
194

195. Table 10: Gross household saving rate, 1997-2007 (% share of gross saving to gross disposable income)
1997 1999 2001 2003 2005 2007
Belgium 17.7 17.2 16.4 14.7 12.6 13.7
Bulgaria
Czech Republic 11.0 8.5 7.4 7.4 8.1 8.8
Denmark 5.0 3.8 8.8 9.4 4.5 5.1
Germany 15.9 15.3 15.2 16.0 16.3 16.7
Estonia 6.5 2.6 3.1 -1.6 -3.8 0.8
Ireland 10.6 11.6 9.2
Greece
Spain 11.1 12.0 11.3 10.2
France 15.8 15.1 15.6 15.6 14.6 15.6
Italy 20.2 15.8 16.0 16.0 15.9 14.2
Cyprus
Latvia 1.8 -0.7 -0.4 3.0 1.2 -4.3
Lithuania 3.4 7.8 4.9 2.9 1.3 0.1
Luxembourg
Hungary 13.7 9.2 11.4 n/a
Malta
Netherlands 17.6 13.8 14.5 13.0 12.2 13.4
Austria 12.6 14.5 12.9 14.0 14.5 16.3
Poland 14.1 13.3 14.2 10.0 9.8 8.8
Portugal 10.8 9.8 10.9 10.5 9.2 6.6
Romania
Slovenia 15.5 13.9 17.0 16.4
Slovakia 13.9 11.2 9.1 7.1 6.9 7.7
Finland 9.1 9.3 7.8 8.4 8.0 5.5
Sweden 7.2 6.0 11.8 11.4 9.5 12.0
United Kingdom 9.6 5.2 6.0 5.1 5.1 2.2
EMU 13 (12) 15.6 14.3 14.3 14.6 14.0 13.9
EU 27 (25, 15) 14.1 12.1 12.4 12.2 11.7 10.8
Source: Eurostat "Statistics in Focus" 29/2009 (with data from Eurostat and OECD).
195

196. Table 11: % share of 5 largest credit institutions in total domestic assets, 1997-2007
1997 1999 2001 2003 2005 2007
Belgium 54.0 76.0 78.0 83.5 85.3 83.4
Bulgaria n/a 50.8 56.7
Czech Republic 65.8 65.5 65.7
Denmark 70.0 71.0 68.0 66.6 66.3 64.2
Germany 17.0 19.0 20.0 21.6 21.6 22.0
Estonia 99.2 98.1 95.7
Ireland 41.0 41.0 43.0 44.4 45.7 46.1
Greece 56.0 67.0 67.0 66.9 65.6 67.7
Spain 32.0 41.0 45.0 43.1 42.0 41.0
France 40.0 43.0 47.0 46.7 51.9 51.8
Italy 25.0 25.0 29.0 27.5 26.8 33.1
Cyprus 57.2 59.8 64.8
Latvia 63.1 67.3 67.2
Lithuania 81.0 80.6 80.9
Luxembourg 23.0 26.0 28.0 31.8 30.7 27.9
Hungary 52.1 53.2 54.1
Malta 77.7 75.3 70.1
Netherlands 79.0 82.0 83.0 84.2 84.5 86.3
Austria 44.0 41.0 45.0 44.2 45.0 42.8
Poland 52.0 48.5 46.6
Portugal 46.0 44.0 60.0 62.7 68.8 67.8
Romania 55.2 59.4 56.3
Slovenia 66.4 63.0 59.5
Slovakia 67.5 67.7 68.2
Finland 88.0 86.0 80.0 81.2 82.9 81.2
Sweden 58.0 56.0 55.0 53.8 57.3 61.0
United Kingdom 24.0 28.0 29.0 32.8 36.3 40.7
EMU 13 (12) * 45.0 49.0 52.0 54.2 54.9 54.7
EU 27 (25, 15)** 46.0 50.0 52.0 58.8 59.3 59.4
Source: ECB Report on EU Banking Structures (October 2008, November 2004).
Notes: *for 1997-2001 the average is calculated for EMU 12.
**for 1997-2001 the average is calculated for EU 15.
196

197. Part 2 – EU Payments Data
Table 1: Cashless Transactions in the EU (per inhabitant), 2007
Cheques (+ bills Credit Total
Credit Direct of exchange Debit (+ delayed E-money ATM cash cashless
transfers debits & others) cards debit) cards purchase withdrawals transactions
Belgium 84.5 22.6 1.0 72.0 9.2 8.5 29.1 226.8
Bulgaria 6.6 0.1 0.0 1.0 0.4 0.0 11.0 19.1
Czech Republic 39.7 26.2 0.0 11.5 1.0 5.8 13.8 98.1
Denmark 50.8 34.0 2.2 145.6 14.7 0.0 3.5 250.8
Germany 62.9 83.9 1.0 21.1 4.1 0.6 23.5 197.3
Estonia 66.8 12.0 0.0 87.3 10.3 0.0 38.2 214.7
Ireland 35.1 22.9 28.5 34.9 25.4 0.0 46.7 193.5
Greece 3.1 1.6 2.7 0.6 6.4 0.0 15.5 29.9
Spain 16.3 49.5 5.0 19.2 24.1 0.0 21.6 135.9
France 41.1 45.8 59.2 96.7 0.0 0.4 24.1 267.3
Italy 18.5 8.6 13.1 13.9 8.5 0.8 8.3 71.6
Cyprus 16.4 14.9 33.2 14.4 18.3 0.0 10.5 107.6
Latvia 52.6 1.8 0.0 28.7 5.0 0.3 23.2 111.5
Lithuania 27.8 2.1 0.1 26.5 1.9 0.0 18.2 76.6
Luxembourg 124.4 26.9 0.5 57.6 36.9 5.0 10.0 261.4
Hungary 56.5 7.8 0.2 11.4 2.0 0.0 11.5 89.4
Malta 10.6 1.9 31.9 12.7 7.2 0.0 23.7 88.0
Netherlands 86.5 71.9 0.0 98.1 4.5 10.7 28.7 300.3
Austria 118.7 86.6 1.0 30.4 7.6 3.5 16.7 264.6
Poland 27.2 0.5 0.0 8.8 3.3 0.0 15.7 55.5
Portugal 12.4 15.3 17.3 75.6 2.8 0.0 39.4 162.9
Romania 12.0 1.1 0.5 1.5 0.7 0.0 7.9 23.8
Slovenia 87.8 20.7 0.2 29.9 21.8 0.0 29.5 189.8
Slovakia 36.1 21.7 0.0 17.8 3.5 0.0 14.6 93.6
Finland 132.5 14.4 0.1 156.3 17.0 0.0 35.9 356.3
Sweden 70.5 22.7 0.1 124.9 21.4 0.0 32.6 272.2
United Kingdom 51.3 48.8 26.3 83.7 34.8 0.0 46.6 291.5
Total euro countries 44.2 46.7 16.1 43.5 7.9 1.3 21.5 181.1
Total non-euro countries 39.2 22.2 9.6 46.5 15.3 0.4 26.0 159.1
Total EU27 42.5 38.3 13.9 44.5 10.4 1.0 23.0 173.6
Source: ECB Blue Book, Addendum incorporating 2008 figures (consolidated).
197

198. Figure 1: Cashless transactions in the EU, by type of transactions, 2007
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
Total euro countries
Total non-euro countries
Total EU27
0% 20% 40% 60% 80% 100%
n Credit transfers
n Direct debits
n Cheques (+ bills of exchange & others)
n Debit cards
n Credit (+ delayed debit) cards
n E-money purchase
n ATM cash withdrawals
198

199. Table 2: Inter-bank funds transfer systems penetration rate, 2007
(volume processed by retail IFTS in total cashless transactions)
Total Volume processed Inter-bank funds transfer
cashless transactions by retail IFTS systems penetration rate, 2007 (%)
Belgium 2,408.70 2,343.00 97.3
Bulgaria 147 108.5 73.8
Czech Republic 1,012.40 411.2 40.6
Denmark 1,369.60 1,347.20 98.4
Germany 16,227.40 2,343.00 14.4
Estonia 287.7 22.8 7.9
Ireland 843.8 206.8 24.5
Greece 334.1 37 11.1
Spain 6,095.60 143.2 2.3
France 16,991.90 12,303.30 72.4
Italy 4,249.70 1,992.10 46.9
Cyprus 85 46.4 54.6
Latvia 254.3 30.2 11.9
Lithuania 258.9 24.7 9.5
Luxembourg 125.5 0 0.0
Hungary 899.3 219.4 24.4
Malta 36.1 6 16.6
Netherlands 4,919.50 3,802.60 77.3
Austria 2,196.50 0 0.0
Poland 2,115.40 1,057.00 50.0
Portugal 1,728.50 1,622.30 93.9
Romania 512.1 109.1 21.3
Slovenia 383.3 53.7 14.0
Slovakia 505.5 0 0.0
Finland 1,884.60 618.8 32.8
Sweden 2,491.00 852.8 34.2
United Kingdom 17,718.00 6,797.90 38.4
Total euro countries 59,015.60 24,142.00 40.9
Total non-euro countries 27,065.80 10,980.70 40.6
Total EU27 86,081.40 35,122.70 40.8
Source: ECB Blue Book, Addendum incorporating 2008 figures (consolidated).
199

200. Figure 2: Inter-bank funds transfer systems penetration rate, 2007
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
Total euro countries
Total non-euro countries
Total EU27
0% 20% 40% 60% 80% 100%
Penetration rate
n Inter-bank funds transfer systems penetration rate, 2007 (%)
200

201. Table 3: Country market share in SEPA-27 (%) 2005-2007
2005 2006 2007
Belgium 2.6 2.6 2.8
Bulgaria 0.2 0.2 0.2
Czech Republic 1.1 1.1 1.2
Denmark 1.4 1.5 1.6
Germany 22.6 22.9 18.9
Estonia 0.3 0.3 0.3
Ireland 0.9 0.9 1
Greece 0.4 0.4 0.4
Spain 6.9 6.5 7.1
France 19.3 19.1 19.7
Italy 4.9 4.8 4.9
Cyprus 0.1 0.1 0.1
Latvia 0.2 0.2 0.3
Lithuania 0.2 0.2 0.3
Luxembourg 0.1 0.1 0.1
Hungary 0.9 1.1 1
Malta 0 0 0
Netherlands 5.4 5.5 5.7
Austria 2.5 2.4 2.6
Poland 1.9 2.1 2.5
Portugal 2 1.9 2
Romania 0.4 0.4 0.6
Slovenia 0.4 0.4 0.4
Slovakia 0.3 0.4 0.6
Finland 1.9 2 2.2
Sweden 2.5 2.6 2.9
United Kingdom 20.5 20 20.6
Total euro countries 70.3 70.2 68.6
Total non-euro countries 29.7 29.8 31.4
Total EU27 100 100 100
Source: ECB Blue Book, Addendum incorporating 2008 figures (consolidated).
201

202. Figure 3: Country market share in SEPA-27 (%) 2005-2007
United Kingdom 20.6% Belgium 2.8%
Bulgaria 0.2%
Czech Republic 1.2%
Denmark 1.6%
Sweden 2.9%
Finland 2.2% Germany 18.9%
Slovakia 0.6%
Estonia 0.3%
Ireland 1.0%
Slovenia 0.4%
Greece 0.4%
Romania 0.6% Spain 7.1%
Portugal 2.0%
Poland 2.5%
Austria 2.6% France 19.7%
Netherlands 5.7%
Hungary 1.0% Italy 4.9%
Cyprus 0.1%
Latvia 0.3%
Lithuania 0.3%
Luxembourg 0.1%
202

203. ANNEX 2
ESBG Charter for Responsible Business
Case Studies
The following presents a number of case studies illustrating how ESBG members implement the principles of the ESBG Charter
for Responsible Business in practice. They are grouped under the six principles of the Charter. The text of the Charter and further
implementation case studies can be found on the ESBG website: www.esbg.eu
1. FAIR AND CLEAR RELATIONS WITH CUSTOMERS
n Caja Navarra in Spain: Plan Cantera- “civic rights for customers”
Caja Navarra (CAN) created a different business model in 2004, focussing on the needs of the community and its members.
The concept was developed as an action plan to increase customer recognition of its “Obra Social”1 projects and thus to
differentiate themselves in the market. CAN decided to create an emotional link by giving its customers the right to decide where
the profits of the bank should be invested.
As the second stage of this new business model, CAN launched “Plan Cantera” for the period 2007-2010, focused on social
trends and on giving clients what they want. This plan includes the initiative “You choose, you decide”, of which “Civic banking”
is the key element. It focuses on civic values – including freedom, identity, civic responsibility, diversity, participation and
sustainability. Plan Cantera gives clients some important rights such as the right to know how much money the bank is making
from the clients’ funds thanks to the “civic contract”, which discloses the amount of money these funds are making for Caja Navarra.
In addition, the organisations receiving funds are more transparent and provide clear information on how the funds donated by
CAN clients are used in the chosen projects.
Since The Plan Cantera was launched, 1,000,000 clients have been informed of the exact value of their contribution. Ninety-six
percent of them considered the effort made by the savings bank to be very effective at increasing the transparency of the bank.
Clients valued very positively the possibility of knowing how much they contribute to “Obra Social”. In 2008, 10,705 customers
chose a civic account; 1,272 projects were selected for funding and 4,193 customers carried out voluntary work on the projects
with 4,007 total hours of service.
n Savings Banks in France: “Bénéfices Futur”
In June 2007, the Caisses d’Epargne launched “Bénéfices Futur” (Future Benefits), a programme designed to place sustainable
development at the very heart of their strategy and banking activities. The aim of this initiative is to reconcile economic performance,
social equity and environmental precaution with actions and commitments in four different areas:
1. Responsible Marketing
2. Fighting climate change
3. Fostering socially responsible investment
4. Solidarity
Further information about “Bénéfices Futur” is available at its dedicated interactive website www.beneficesfutur.fr.
1 A scheme by which all Spanish savings banks allocate their net surplus (after paying taxes and allocating provisions and reserves) to the management and financing
of community investment programmes (social, cultural, environmental, health, research, etc).
203

204. One of the most innovative initiatives taken under the Responsible Marketing pillar of this programme was the labelling of their
products. It was decided that all products should be rated on a score from 5 (best) to 1 (worst) according to the following three criteria:
n Financial risk
n Corporate social responsibility (CSR) and socially responsible investment (SRI) criteria in the product design
n Carbon footprint of the product
In order to implement this ethical labeling initiative, a methodology was developed by the Caisses d’Epargne and a consultancy
company in cooperation with four external partners: ADEME (the French environmental management agency) Friends of the
Earth, WWF and a consumer organisation “Testé pour vous”. This initiative came to fruition in 2008 when the savings products
of the Caisses d’Epargne were presented with their label on the website and in the brochures available within branches.
n ASN Bank in the Netherlands publishes the climate impact of its investment funds
The mission of ASN Bank, a fully independent subsidiary of SNS Reaal, ESBG’s Dutch member, is to promote sustainability in society.
The financial operations of the bank are guided by this goal. ASN Bank observes special investment criteria and has communicated
its stance on issues such as human rights and climate change through the publication of Issue Papers in 2007 and 2008.
ASN Bank shares the view of the Intergovernmental Panel on Climate Change (IPCC) that climate change is caused by the global
warming of the earth as a result of greenhouse gases due to human activities. In order to know whether its investment strategy
was contributing to global warming, ASN Bank addressed Trucost, an environmental data provider specialized in reporting the
environmental impact of companies, to measure the CO2 emission of the companies in which their funds invest.
In May 2009, ASN Bank published the results of the research by Trucost. The results show that the combined CO2 emissions of
the three ASN investment funds were considerably reduced in 2008. In effect, the total combined carbon intensity of its funds is
49% lower than the benchmark, the MCSI All World Developed Index. This shows that the customers of ASN Bank invest in much
more climate-friendly funds than the average investor. Furthermore they are able to assess the carbon intensity of their
investments through the published calculations.
n Lloyds TSB in the UK: Reflecting the diversity of customers
Lloyds TSB has taken several initiatives in order to facilitate the opening of a bank account to customers new to the UK and whose
first language is not English. The management has hired multilingual staff to ensure that their workforce reflects the composition
of the local community. Moreover, the senior business banking managers are being trained to be aware of cultural differences
and to encourage diversity. Thus Lloyds TSB acknowledges that people from ethnic minority communities make a significant
contribution to the UK economy and are very important for the Group.
n Bancaja in Spain: “Bancaja Commitment”
In 2005 Bancaja established the basis for a new relationship with its private clients. This new way of working is called the “Bancaja
Commitment” and aims to make banking transactions clear and transparent for customers. Under the slogan “If it's not good
for you, it's not good for us”, Bancaja has pledged to fulfil 17 separate commitments. These have been added progressively since
2005 with the objective of fulfilling all the needs that private customers can have in their banking operations. Although it is
focused on private customers, professionals and companies may also benefit from some of the measures.
If Bancaja fails to fulfil a commitment, the client can receive financial compensation. The exact amount of such compensation is
stipulated for each of the commitments.
204

205. 2. PROMOTION OF ACCESSIBILITY AND FINANCIAL INCLUSION
n Savings Banks in France: Microcredit programme “Parcours Confiance”
In 2006, the Caisses d’Epargne launched the “Parcours Confiance” (Fresh Start) programme to prevent financial exclusion.
The programme aims to help customers suffering from personal and financial problems to have a better understanding of banking
products and services. This programme also allows for the possibility of providing the beneficiary with microloans backed
by guarantees.
“Parcours Confiance” includes a comprehensive and customized support and follow-up with the cooperation of the organization
“Finances and Pédagogie” (a subsidiary of the Caisses d’Epargne dedicated to financial education) and the support of the social
authorities. In order to offer this service, the Caisses d’Epargne have developed partnerships with a wide range of stakeholders
such as business creation specialists as well as social assistance and integration organizations. A total of 4,495 micro loans were
granted from when the system was launched in 2006 up to the end of 2008. Of these, 3,275 were personal microloans and
1,220 were business microloans.
n Die Zweite Sparkasse in Austria: “The bank for people without a bank”
Die Zweite Sparkasse, “The bank for people without a bank”, is a new model of savings bank operating in Austria. It started in
2006 initiated by Erste Foundation in close cooperation with Caritas and a debt counselling service. Its objective is to provide bank
accounts to those people who are no longer banked because of economic and/or social difficulties such as unemployment,
over-indebtedness, and homelessness. The service provided is a basic bank account with a bank card, which does not offer
overdraft facilities. It is offered for three years with the perspective that, after this period, beneficiaries can be reintegrated into
the “conventional” banking system.
The distinguishing feature of the Zweite Sparkasse is that it is entirely run by volunteers. Over 400 volunteers of the Erste Bank
and the Sparkassen (savings banks) in Austria are involved with the Zweite Sparkasse, which enhances its visibility. Since 2008, it
has been operational in almost all federal states of Austria and 4,000 accounts have been opened. More information is available
at: www.sparkasse.at/diezweitesparkasse.
n Savings banks in Germany: Educating households on financial matters through “Geld und Haushalt”
Over the past 51 years, the Deutscher Sparkassen-und Giroverband (DSGV) (German Savings Banks Association) has been
improving the financial management skills of people in Germany. Geld und Haushalt (Money and the Private Household) is the
advisory service operated by the German savings banks and provided free of charge to all members of society. With this service,
it provides financial literacy training and a whole range of service offers under the theme of private finance and household budget
management. The key objectives are to enhance basic financial know-how, improve the understanding of efficient spending in
private households and, in this way, help to prevent excessive debt and private insolvencies. More information is available at:
www.geldundhaushalt.de.
The German Savings Banks specifically provide:
n an advisory service in the form of publications, as well as internet and mobile phone programmes to plan private budgets;
n a lecture service with which information campaigns are organised in cooperation with adult-education centres, welfare
institutions, and the debt-advisory service; and
n an individual budget analysis service.
The value of Geld und Haushalt is demonstrated by its designation as an official project of the UN Decade of Education for
Sustainable Development (2005-2014).
205

206. n SNS Bank in the Netherlands: “Promoting Accessibility”
In 2002, SNS Bank (a part of SNS Reaal) changed its logo and refocused its business strategy on becoming the best bank in
consumer friendliness and on keeping the bank accessible to a broad section of the population. As part of this strategy, SNS Bank
decided to enlarge and improve their self-service offer – including internet product and services – and to make it more accessible
to all people – including persons suffering from visual impairment.
To this effect it started cooperation with Viziris, the Dutch federation of visually handicapped and the blind in 2002 and with
University of Twente, an entrepreneurial research university, in 2003. The objective was to improve accessibility by adapting the
website, simplifying navigation, improving the search engine, adjusting the online banking token and adapting ATMs. By 2005
the website was highly accessible for Braille use and, in 2006, they received a ‘Fakkelprijs’, an award from the Dutch Counsel of
chronic patients and the handicapped. Also in 2006, SNS Bank introduced an advice service via webcam and implemented fifteen
of the sixteen World Wide Web consortium2 (W3C) accessibility guidelines. In 2008 they introduced a speaking online banking
token. SNS Bank continues to work on improving the accessibility of its services and is launching a new Internet site in 2009.
n La Caixa in Spain: “Obra Social” website awarded AA accessibility
One of the priorities of La Caja de Ahorros y Pensiones de Barcelona, known as “La Caixa”, is to provide wide accessibility for all
its financial services and products. In order to fulfil this objective and at the same time to provide an innovative and quality service,
La Caixa has developed its “Welfare Project” programme, which focuses on making its financial products available without
physical, technological or structural limitations. Specifically, in order to make its website accessible to everyone, irrespective of the
type of hardware, software, network infrastructure, language, culture, location or capacity of users, La Caixa followed the
recommendations outlined by the Web Accessibility Initiative (WAI) and in 2006, it obtained the AA rated certification of
accessibility from the WAI for the contents of its portal.
Since July 2006, the online banking service of La Caixa has been available to people with visual difficulties. In addition, in the
“Accessibility Corner” there are videos produced in sign language and with subtitles in Catalan and Spanish for the hearing-
impaired. They are available through all distribution channels including ATMs, the Internet, as well as the mobile and telephone
platform. In addition, since 2006, La Caixa has been collaborating with a Spanish foundation for the blind in order to find
solutions that provide accessibility in some sections of their online banking website. Among other actions, La Caixa is making
online banking compatible with the computer screen reading programme used by blind people (JAWS). Between 2006 and 2010
La Caixa will invest EUR 140 million to make access to its client distribution channels easier for disabled people.
3. ENVIRONMENT–FRIENDLY BUSINESS
n Caja Madrid in Spain: “La Comunidad Ahorra “
In 2005 Caja Madrid launched a programme named “La Comunidad Ahorra” (The Community Saves), which aims to reduce the
consumption of energy among residents’ associations in the region of Madrid. The main objective of this initiative is to encourage
energy-saving measures in homes and common areas owned by communities by raising the awareness of local residents and
encouraging the implementation of measures to reduce energy consumption. Since its launch, the programme has had the
participation of more than 1,300 residents’ associations in the city of Madrid and the municipality of Arganzuela.
The project is divided into two phases. In the first phase, the participating communities enrol in the programme to reduce their
energy consumption. Upon registering, they receive a brochure with information on different ways to reduce energy consumption
such as reducing electricity and gas usage as well as reducing energy used for the heating and cooling of buildings. The total
energy consumption of the building is measured before and one year after owners have received the brochure. The three best
performances achieved receive a prize. This prize consists of the installation of 2.5 kilowatts of solar photovoltaic power panels
free of charge. This facility has a minimum operating guarantee of 25 years and an approximate value of €25,000.
2 The World Wide Web Consortium (W3C) is an international consortium that produces standards for the World Wide Web. The organisation was formed in the
1990s to encourage the evolution and interoperability of the web. In 1997 the W3C created the Web Accessibility Initiative to provide the guidelines and resources
that help make the web accessible.
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207. The second phase starts once the panels have been installed and the community becomes small producers of green energy, which
can then be used for sale or own consumption. During the first two years of this programme, the six community winners jointly
reduced their emissions by 60 tonnes of CO2 and saved 12,000 kilowatt-hours in electricity. consumption. This means approximate
savings of € 2,000 for each winner.
n Lloyds TSB in the UK: Commitment to reduce carbon emission by 30% by 2012.
Following a study carried out in 2006 with the Carbon Trust – a government sponsored agency promoting energy saving –
to develop a carbon management programme, Lloyds TSB announced the target to reduce CO2 emissions by 30% by 2012, using
2002 as the baseline. Lloyds TSB committed itself to attaining this target and has progressively diminished its CO2 footprint by
more than 64,000 tons since 2002. This was done mainly by improving properties and through buying renewable energy, and,
from 2006, by using energy from good quality combined heat and power sources (CHP). CHP is a highly fuel efficient technology
that puts to use waste heat produced as a by-product of generating electricity. Cutting out unnecessary travel and promoting
alternatives such as audio and video conferences also made up an important component of the reduction strategy.
Lloyds TSB recognises that it will take the commitment of all staff to help the Group achieve this target and it seeks to inspire
employees to rise to the challenge. The commitment starts at the top with the Chairman, Group Chief Executive and managing
directors of Group Property Management, Group Procurement, Group IT and Group Operational Services who have all given a
personal commitment to achieve the target. Furthermore, the Group has created a sustainability network for employees across
the business that are committed to helping the company achieve its environmental objectives. Lloyds TSB considers that raising
awareness of the climate programme helps attract and hold on to the best people. Research shows that employees want to work
for a company that cares for the environment.
n Bayern LB in Germany: Environmental and social considerations in project finance
Financial institutions can play an important role in the fight against climate change, especially in the financing of markets for
renewable energies. Bayern LB, a member of the German Savings Banks Group which is active in the field of sustainable lending,
is very much interested in and dedicated to financing renewable energy projects. However, even before providing funds in this
market segment, the environmental and social risks involved have to be taken into account. In line with the bank’s credit risk
strategy, Bayern LB’s financing solutions have to comply with the World Bank standards which set out that:
1) Environmental and social management systems are to be structured to avoid or minimise potential negative impact.
2) Population groups affected by a project should be brought in to the project process.
3) Biotopes and habitats need to be protected.
4) Human rights of indigenous peoples must be respected.
This compliance is necessary irrespective of the character of the financing (corporate banking, project finance, export finance) and
the financing volume. Further information on Bayern LB’s policy in this matter is available at: http://www.bayernlb.de/internet/en/
meta/Ueber_uns/Corporate_Responsibi/Sustainability_Mgm/Sustainable_lending.html.
The story of the Ilisu Dam project in Southern Anatolia in Turkey demonstrates Bayern LB’s environmental and social
considerations in project financing. Bayern LB was invited to join a German exporter and finance technical equipment for a water
power project called Ilisu. The Ilisu hydro-electric power project was to be located on the Tigris River, 65 km upstream from the
borders with Syria and Iraq. From the bank’s point of view, the Ilisu dam project – located in Turkey – did not comply with the
World Bank standards as there were no appropriate resettlement action plans for the affected population (approx. 60,000 Kurds),
there were no consultations with the riparian zone states Iraq and Syria, there was no appropriate action plan regarding
Hasankeyf – a 10,000 year-old ancient city which is declared a natural conservation area – that would be flooded if the Ilisu hydro-
electric power project was carried out. Although this was a renewable energy financing project, Bayern LB finally decided not to
participate in this project due to the adverse environmental and social effects.
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208. n Bilbao Bizkaia Kuxta (BBK) in Spain: Green product offers
Bilbao Bizkaia Kuxta (BBK) is one of the first financial institutions in Spain to offer green credit lines for a wide range of products.
It is the result of a new corporate strategy aimed not only at addressing the opportunities that climate change offers to financial
institutions, but also at contributing to the objectives of the Kyoto Protocol. They have created three green credit lines for financing
cars, home improvement loans, and equipment and green mortgages. These products are mainly addressed to private customers.
Concerning green loans for financing cars, BBK launched this product in January 2008 and offers an interest rate discount of
0.5% for cars with CO2 emissions below or equal to 120 grams/km. The green loans designated to improve homes were brought
to the market on 1 August 2008 and include three product categories: i) renewable energy equipment, ii) home improvements
to enhance comfort and energy efficiency and iii) the purchase of energy efficient domestic appliances. All loans provided for any
of the aforementioned categories benefit from a 0.5% interest rate reduction. Renewable energy measures include solar thermal
energy (STE), wind energy, biomass and solar photovoltaic products connected to the national grid for energy production
purposes or for individual use. In terms of home renovation, loans for clients are provided mainly for insulation purposes.
Finally, related to domestic appliances only the products labelled with the A+ category benefit from interest rate reductions.
BBK’s green mortgages have been a success and were very well received among clients and the press since their launch in May
2008. They do not provide an interest rate reduction, but rather a financial bonus of up to EUR 1,000 per purchase of new houses
and apartments dating from 2007 that have received an energy efficiency label. Given that there was no Spanish regulation in
this field, Kuxta had to develop its own energy efficiency label application. They did this with the help of architects, civil engineers
and plumbers to define an appropriate set of indicators. Under this scheme, Kuxta gives a cheque to its customer for an amount
of EUR 1,000 if the certification obtained is energy class A, EUR 750 for an energy class B certification and EUR 500 for an energy
class C certification.
4. MAKING A RESPONSIBLE CONTRIBUTION TO THE COMMUNITY
n Savings banks in Germany: Business Angels and Customer Information Centres
In recent years over half of all start-up business in Germany were financed by institutions belonging to the German savings banks
group – the Sparkassen-Finanzgruppe. Entrepreneurial success is not only a matter of creativity, but also one of experience.
Therefore the German savings banks cooperate with Business Angels Netzwerk Deutschland (BAND) and assign “business angels”
to new companies. These business angels are knowledgeable business managers, who not only have a wealth of experience to
offer to new companies but can also share a network of contacts to help new enterprises on their way. More information is
available at: http://www.business-angels.de/.
The Sparkassen-Finanzgruppe has also taken its own Business Angels initiatives in addition to cooperation with BAND. A good case in
point is the Business Angels Investment Company of Sparkasse Hannover which was the first company in the Sparkassen-Finanzgruppe
to focus exclusively on Business Angels. This approach complies with the declared objective of the Sparkassen-Finanzgruppe to
offer new companies a secure and sustainable future.
In addition, a central backup-service called EuropaService has been launched by the Sparkassen-Finanzgruppe to provide support,
advice and information to corporate customers with regard to conducting business in the European market. It covers information
on the economic, legal and social aspects of the internal market. Furthermore, it focuses on EU funding and financing
programmes, country information for investment and trade and searches for business partners via the Enterprise Europe Network
– accredited by the European Commission – to which it is connected. As such, EuropaService is well placed to provide companies
with competent advice and information on European matters.
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209. n Savings Bank Foundations in Italy: Social Housing Projects
As philanthropic entities, the 88 banking foundations affiliated with ACRI (the Italian savings banks association) provide grants
reaching over €1.5 billion per year. They operate according to subsidiarity principles, and intervene on behalf of the needs of
people and specific territories, by giving grants in various sectors.
In recent years, the Italian savings bank foundations have also been addressing the growing issue of emergency housing. Through the
individual work of single foundations, working autonomously in their local areas, the foundations as a whole have acquired varied
experience in all facets of social housing. Social housing comprises various types of intervention ultimately aimed at achieving the
very same objectives, such as:
n the activation of real estate funds dedicated to encouraging access to affordable housing for disadvantaged people, involving
private partners (Fondo Abitare Sociale of Fondazione Cariplo; Fondazione CR Torino’s new initiative of ” venture philanthropy”
and numerous other funds);
n the creation of construction companies (Fondazione Cassa di Risparmio di Alessandria);
n financial support given to social housing projects developed in conjunction with local authorities (Fondazione Monte dei Paschi
di Siena, Fondazione Cassa di Risparmio di Parma e Monte di Credito su Pegno di Busseto, Fondazione Cassa di Risparmio in
Bologna, Fondazione Cassa di Risparmio di Modena, Fondazione Cassa di Risparmio di Forlì);
n the construction of rent-controlled temporary accommodation to be rented to disadvantaged individuals (Fondazione Cariplo,
Compagnia di San Paolo);
n the creation of revolving funds, providing low interest rates on mortgages to disadvantaged people on their first homes
(Fondazione Cassa di Risparmio di Padova e Rovigo);
n the creation of guarantee funds to cover eventual insolvencies on mortgage repayments (Fondazione Cassa di Risparmio di
Padova e Rovigo).
n Montepio in Portugal: Solidarity with vulnerable parts of the population
In 2008, the foundation of Montepio Bank funded 123 innovative projects of solidarity institutions active in the areas of charity,
health, social affairs, education and environment for a total amount of EUR 1 million. The main focus of these projects was on
the most vulnerable parts of Portuguese society and persons suffering severe socio-economic difficulties. The general objective
was to improve the living conditions of these people.
Montepio Foundation specifically supported institutions that host or work with children from disadvantaged households or who
have been deprived of a normal family environment. With this funding from Montepio, these institutions were able to improve their
hosting facilities, train families and their staff, and guarantee access for disadvantaged children to playing and learning activities.
The foundation has also acknowledged the demographic changes and the increasing difficulties that most elderly citizens face.
Accordingly, it has provided funds to institutions for the replacement of equipment in retirement homes, the provision of
information and training sessions for elderly people and activities to fight against loneliness.
Furthermore, the foundation has entered into partnerships with national health care associations contributing to the realisation
of health information campaigns for citizens. In this context, the foundation published a “Small guide of topics and advice” which
aims to transmit valuable knowledge in the area of nutrition and health. More information is available in Portuguese at:
http://www.montepio.pt/ePortal/v10/PT/jsp/montepio/ResponsabilidadeSocial/ProjectosApoiados.jsp.
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210. n Sparkasse Leipzig in Germany: Prize for freedom and future of media
Freedom of speech and diversity of opinions are basic principles of democratic societies. In particular, the historical experiences in
20th century Germany with two totalitarian political systems have highlighted the need for critical journalism.
To encourage journalists, publishers, and media institutions to show willingness to take risks, personal engagement, courage, and
conviction for freedom of speech, Sparkasse Leipzig has awarded a “Prize for freedom and future of media” since 2001. Leipzig is also
a symbolic location for awarding the prize as the peaceful revolution of 1989, which overthrew the communist system of Eastern
Germany, started in Leipzig’s Nikolaikirche. Sparkasse Leipzig wants to promote the democratic tradition and has therefore
decided to donate this prize. So far, the winners of the prize have included journalists from Germany, Italy, the Czech Republic,
Russia, Ukraine, Moldavia, Palestine, Israel, the USA, the United Kingdom and Myanmar as well as several media institutions.
5. RESPONSIBLE EMPLOYERS
n Swedbank in Sweden: The “55+ Concept”
To increase the development of the competence of its staff members and their wellbeing, Swedbank has invented a competence
model and designed a concept for staff aged 55 years and above. The aim of the programme is to create efficiency, to preserve all
competence throughout the company, and to make the company an attractive employer for employees of all ages. The “55+Concept”
involves keep-fit and competence development activities for employees aged 55 years and over. When employees reach the age
of 58 years, they can take advantage of the “Ease Down” and “PlusTime” programmes.
The “Ease Down” offer entitles employees over 58 years of age to work 80% of regular working hours with 90% pay and the
occupational pension maintained at 100%. As an alternative to this offer “PlusTime” gives employees who continue working full
time after the age of 58 or part-time employees who work 80% or more, the opportunity to take three additional days of leave
per year. This offer was initiated to promote a balance in life and to create additional time for employees to enable them to be
more effective and more creative at work. A survey conducted among Swedbank employees aged over 58 years of age shows
that the “Ease Down” programme in particular has had a positive impact on the way that these employees find their working
life conditions.
n Savings Banks in France: Fighting discrimination and promoting equal rights and opportunities
The Caisses d’Epargne have signed a collective national agreement for 2006-2008 in order to underline their commitment to fight
all forms of social isolation and promote equal rights and opportunities. This accord is the first step of a continuous and
sustainable effort for the employment and integration of disabled people. Over this period 200 disabled employees were recruited
for long-term careers, far better than the initial target of 170 jobs.
Moreover, approximately 2000 initiatives were taken in collaboration with the Human Resources Department such as “Introduction of
Banking Business” programmes and the creation of a multimedia tool to facilitate the integration of a disabled person into a
team. In addition, the Caisses d’Epargne have experimented and developed new recruitment methods to reinforce their
commitment to diversity. These include recruitment by simulation and testing adapted to the individual’s specific characteristics.
n Saving Bank in Luxembourg: Programme for wellbeing at work
In 2006, the Luxembourg State Savings Bank the Banque et Caisse d’Epargne de l’Etat (BCEE), celebrated its 150th anniversary.
The main motto of the celebration was “Wellbeing at work and long term development of the workforce”. Conferences, workshops
and activities were organised to develop this main topic and to get workers involved in the anniversary celebrations. The efforts
of the BCEE were recognized in 2006 by the European Club for Health in Brussels with the award for Luxembourg of the “Prix
Sante et Enterprise”.
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211. The activities organised by the BCEE in the context of this initiative included the installation of fitness centres, the visits of
ergonomic experts to the bank premises and the entitlement of each employer to a voluntary medical check-up paid by the BCEE.
The success of this initiative has been so important that the bank decided to continue the programme to maintain and develop
a high quality workplace at BCEE. The programme is still in place today.
n Savings banks in Austria: New salary and career system for employees
In 2000, the Austrian Savings Banks Association, the Sparkassenverband, elaborated and concluded a new salary and careers
system in joint collaboration with the Federal Savings Banks Committee of the Austrian Trade Union Federation. The new system
created an ideal balance between job security and possibilities of change for individual and career development. Moreover, this
system addressed the encouragement of obtaining qualifications and having a motivated and experienced workforce and it was
accompanied and strengthened by a series of measures for staff promotion. Furthermore, this system complied with the
requirements for CSR and introduced elements of certain CSR principles previously unknown at the Austrian Sparkassenverband.
The individual Sparkassen reinforced the above-mentioned salary and career system with their own individual measures in terms
of family and health policy. For example, Erste Bank initiated the LIFETIME project as a means of preparing for the progressive
aging of society to be reflected in its workforce. Steiermärkische Sparkasse Bank AG won the European Work & Family Audit in
2007. In 2008, Sparkasse Neuhofen won the title of “Austria's Best Employer” by the European Great Place to Work Institute
and ranked Sixth Best Employer in Europe (in the category 50 to 500 employees). In addition, sBausparkasse was ranked 13th in
the “Best employer in Austria” contest and achieved a special prize for the promotion of older employees from the Great Place
to Work Institute in 2009.
COMMUNICATION
Transparency and consistent communication with customers and other stakeholders is a key component of the savings and retail
banking sector. ESBG and its members are also becoming increasingly aware of the importance of non-financial reporting and are
committed to communicating on their activities as socially responsible companies and on the implementation of the principles of
the ESBG Charter for Responsible Business. As part of this commitment ESBG and a number of its members have also joined
European and international CSR initiatives.
At a European level, ESBG, on behalf of its member banks, has expressed its support to the European Alliance on CSR, which was
launched by the European Commission in 2006. Some of its individual members have also officially become supporters.3
ESBG and its members are active participants in this forum and have organised laboratory meetings, which form part of CSR
Europe’s Toolbox.
At an international level, this commitment to communication on its CSR activities is evidenced by the subscription of ESBG, its
sister organisation WSBI, as well as a number of its members to the United Nations Global Compact, the world's largest voluntary
corporate responsibility initiative. As a business organization ESBG/WSBI provides input to improve the uptake, implementation
and strategic orientation of UN Global Compact principles into its members’ business activities. Its participation also reinforces
the engagement of its members – some of whom already participate on an individual basis.4
Furthermore, some ESBG members, such as Erste Bank, Lloyds TSB and Swedbank, also subscribe to international reporting
projects such as the Carbon Disclosure Project (CDP) and the Global Reporting Initiative (GRI).
3 At the time of writing, these included Erste Bank in Austria, Groupe Caisse d’Epargne, a number of German Sparkassen, OTP Bank in Hungary, Banque et Caisse
d’Epargne de l’Etat in Luxembourg, Montepio in Portugal, CECA and 15 Cajas de Ahorros in Spain as well as Lloyds TSB in the UK.
4 At the time of writing, these included Erste Bank, CECA and 25 Spanish Cajas, Groupe Caisse d’Epargne, SNS Reaal, Swedbank as well as two WSBI Latin American
members: Banco Estado Chile and Caixa Economica Federal, Brazil.
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212. ESBG members communicate in different ways on their CSR activities and achievements. The majority of ESBG member banks
publish information regarding their CSR activities within their annual reports. In addition, some of them dedicate specific sections
on their websites to CSR activities. This is the case of the Caisses d’Epargne (which publish all of their CSR activities on the
“Bénéfices Futur” website), Swedbank, and Lloyds TSB. In Germany, several savings banks publish a list of their CSR activities on
their websites. All of the Spanish savings banks dedicate a special section on their websites to inform about their CSR activities
and, in addition, CECA, the Confederation of Spanish Savings Banks has developed a website dedicated to the “Obra Social”
activities of its members.
Moreover, some ESBG members produce specific CSR reports. This is the case for Lloyds TSB, Swedbank and SNS Reaal which
publish annual reports on their CSR activities, which are also available on their websites. The majority of the Spanish savings banks
also produce individual CSR reports and, in addition, CECA publishes an annual report with aggregated data on the CSR activities
of its members. It should be noted that SNS Reaal, Swedbank and some 29 Spanish savings banks publish their CSR reports
according to the Global Reporting Initiative (GRI). The latter have reached the highest possible level in terms of international
recognition from the GRI: “A+ GRI Checked”.
Finally, it should be noted that the Spanish Caja Navarra (CAN) is a remarkable example of CSR reporting. It is the first company
in the world to have written its CSR report in XBRL (eXtensible Business Reporting Language), which facilitates the comparison
of financial information. XBRL had not, however, been used for CSR reports until CAN published its 2008 CSR report.
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213. BIBLIOGRAPHY
1. Existing Legislation (Treaties and Protocols, Regulations, Directives, Decisions,
Recommendations)
1.1. Treaties and Protocols
Treaty on European Union, OJ C 191, 29.07.1992.
1.2. Regulations
- Regulation (EC) No 2560/2001 of the European Parliament and of the Council of 19 December 2001 on cross-border payments
in euro, OJ L 344, 28.12.2001.
- Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international
accounting standards, OJ L 243, 11.09.2002.
- Regulation (EC) No x/2009 of the European Parliament and of the Council on credit rating agencies, awaiting publication in
the OJ.
1.3. Directives
- Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on annual accounts of certain types of
companies, OJ L 222, 14.8.1978.
- Council Directive 79/279/EEC of 5 March 1979 coordinating the conditions for the admission of securities to official stock
exchange listing, OJ L 066, 16.03.1979.
- Council Directive 82/121/EEC of 15 February 1982 on information to be published on a regular basis by companies the shares
of which have been admitted to official stock-exchange listing, OJ L 48, 20.02.1982.
- Council Directive 83/349/EEC of 13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated accounts, OJ L 193,
18.07.1983.
- Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions
relating to undertakings for collective investment in transferable securities (UCITS), OJ L 375, 31.12.1985.
- Council Directive 88/627/EEC of 12 December 1988 on the information to be published when a major holding in a listed
company is acquired or disposed of, OJ L 348, 17.12.1988.
- Second Council Directive 89/646/EEC of 15 December 1989 on the coordination of laws, regulations and administrative
provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC, OJ L
386, 30.12.1989.
- Council Directive 91/308/EEC of 10 June 1991 on prevention of the use of the financial system for the purpose of money
laundering, OJ L 166, 28.6.1991.
- Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field, OJ L 141, 11.06.1993.
- Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes, OJ L 135,
31.05.1994
- Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with
regard to processing of personal data and on the free movement of such data, OJ L 281, 23.11.1995.
- Directive 97/7/EC of the European Parliament and the Council of 20 May 1997 on the protection of consumers in respect of
distance contracts, OJ L 144, 4.6.1997.
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214. - Directive 2001/34/EC of the European Parliament and of the Council of 28 May 2001 on the admission of securities to official
stock exchange listing and on information to be published on those securities, OJ L 184, 06.07.2001.
- Directive 2001/97/EC of the European Parliament and of the Council of 4 December 2001 amending Directive 91/308/EEC on
prevention of the use of the financial system for the purpose of money laundering, OJ L 344, 28.12.2001.
- Directive 2001/107/EC of the European Parliament and of the Council of 21 January 2002 amending Council Directive 85/611/EEC
on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in
transferable securities (UCITS), with a view to regulating management companies and simplified prospectuses, OJ L 41, 13.02.2002.
- Directive 2001/108/EC of the European Parliament and of the Council of 21 January 2002 amending Council Directive 85/611/EEC
on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable
securities (UCITS), with regard to investments of UCITS, OJ L 41, 13.02.2002.
- Directive 2002/65/EC of the European Parliament and the Council of 23 September 2002 concerning the distance marketing
of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC, OJ L 271,
9.10.2002.
- Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation
(market abuse), OJ L 96, 12.04.2003.
- Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published
when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC, OJ L 345, 31.12.2003.
- Directive 2004/39/EC of the European Parliament and Council of 21 April 2004 on markets in financial instruments amending
Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing
Council Directive 93/22/EEC, OJ L 145, 30.04.2004.
- Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency
requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending
Directive 2001/34/EC, OJ L 390, 31.12.2004.
- Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the
financial system for the purpose of money laundering and terrorist financing, OJ L 309, 25.11.2005.
- Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of
the business of credit institutions (recast), OJ L 177, 30.06.2006 [Capital Requirements Directive].
- Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal
market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC Text with EEA
relevance, OJ L 319, 05.12.2007.
- Directive 2008/48/EC of the European Parliament and of the Council on credit agreements for consumers, OJ L 133, 23.04.2008.
- Directive 2009/14/EC of the European Parliament and of the Council of 11 March 2009 amending Directive 94/19/EC on
deposit-guarantee schemes as regards the coverage level and the payout delay, OJ L 68, 13.03.2009.
- Directive 2009/…/EC of the European Parliament and of the Council on the coordination of laws, regulations and administrative
provisions relating to undertakings for collective investment in transferable securities (UCITS), (recast), 2008/0153 (COD),
19.06.2009.
1.4. Commission Regulations and Directives
- Commission Regulation (EC) No 1725/2003 of 29 September 2003 adopting certain international accounting standards in
accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, OJ L 261, 13.10.2003.
- Commission Regulation (EC) No 707/2004 of 6 April 2004 amending Regulation (EC) No 1725/2003 adopting certain
international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the
Council, OJ L 111, 17.04.2004.
- Commission Regulation (EC) No 1287/2006 of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament
and of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency,
admission of financial instruments to trading, and defined terms for the purposes of that Directive, OJ L 241, 02.09.2006.
- Commission Regulation (EC) No 1004/2008 of 15 October 2008 amending Regulation (EC) No 1725/2003 adopting certain
international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the
Council as regards International Accounting Standard (IAS) 39 and International Financial Reporting Standard (IFRS) 7, OJ L 275,
16.10.2008.
214

215. - Commission Directive 2006/70/EC of 1 August 2006 laying down implementing measures for Directive 2005/60/EC as regards
the definition of ‘politically exposed person’ and the technical criteria for simplified customer due diligence procedures and for
exemption on grounds of a financial activity conducted on an occasional or very limited basis, OJ L 214, 4.8.2006.
- Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of
the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the
purposes of that Directive, OJ L 241, 02.09.2006.
- Commission Directive 2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws,
regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as
regards the clarification of certain definitions, OJ L 79, 20.03.2007.
1.5. Decisions
- European Council Framework Decision (2002/475/JHA) of 13 June 2002 on combating terrorism, OJ L164, 22.06.2002.
1.6. Recommendations
- Commission Recommendation 2001/193/EC of 1 March 2001 on pre-contractual information to be given to consumers by
lenders offering home loans, C(2001) 477), OJ L 069, 10.03.2001.
- Commission Recommendation 2003/361/EC of 16 May 2003 concerning the definition of micro, small and medium enterprises,
OJ L124, 20.05.2003.
- Commission Recommendation 2009/384/EC of 30 April 2009 on remuneration policies in the financial services sector, OJ L 120,
15.5.2009.
2. European Parliament (reports, resolutions and decisions)
- European Parliament. 2007. Draft Report on International Financial reporting Standards (IFRS) and the Governance of the IASB
(2006/2248(INI)). Committee on Economic and Monetary Affairs of 24 September 2007. Rapporteur: Alexander Radwan.
- European Parliament. 2008. Report on International Financial reporting Standards (IFRS) and the Governance of the IASB
(2006/2248(INI)). Committee on Economic and Monetary Affairs of 5 February 2008. Rapporteur: Alexander Radwan.
- European Parliament. 2008. European Parliament resolution of 24 April 2008 on International Financial Reporting Standards
(IFRS) and the Governance of the International Accounting Standards Board (IASB) (2006/2248(INI)).
- European Parliament. 2008. European Parliament resolution on competition: sector inquiry on retail banking (A6-0185/2008 /
P6_TA-PROV(2008)0260). Committee on Economic and Monetary Affairs of 5 June 2008, Rapporteur: Gianni Pittella.
- European Parliament. 2008. European Parliament resolution on the Green Paper on retail financial services in the Single
Market (A6-0187/2008 / P6-TA-PORV(2008)026). Committee on Economic and Monetary Affairs of 5 June 2008, Rapporteur:
Othmar Karas.
- European Parliament. 2008. European Parliament resolution of 18 November 2008 on protecting the consumer: improving
consumer education and awareness on credit and finance (2007/2288(INI)).
- European Parliament. 2009. European Parliament Report on European initiative for the development of micro-credit in support
of growth and employment (2008/2122(INI)) Committee on Economic and Monetary affairs of 29 January 2009, Rapporteur:
Zsolt Laszlo Becsey.
- European Parliament. 2009. European Parliament resolution of 10 March 2009 on the Small Business Act (2008/2237(INI)).
- European Parliament. 2009. European Parliament legislative resolution of 6 May 2009 on the proposal for a directive of the
European Parliament and of the Council amending Directives 2006/48/EC and 2006/49/EC as regards banks affiliated to central
institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management P6_TA-PROV(2009)-
0367, 8.05.2009 [CRD 2].
215

216. 3. Non-legislative texts published by EU institutions and bodies
- Basel Committee on Banking Supervision. 2005. Basel II: International Convergence of Capital Measurement and Capital
Standards: a Revised Framework, June 2004, revised in November 2005 [Basel II framework].
- Committee of European Banking Supervisors. 2008. Second part of technical advice to the European Commission on liquidity
risk management.
- Committee of European Banking Supervisors. 2009. High Level Principles on Remuneration Policies.
- Committee of European Securities Regulators. 2009. Guidelines on Market Abuse Directive Level 3 – Third set of CESR guidance
and information on the common operation of the Directive to the market, CESR/09-219, 15 May.
- Council of the European Union. 2005. Guidelines on implementation and evaluation of restrictive measures (sanctions) in the
framework of the EU Common Foreign and Security Policy. Brussels [http://register.consilium.europa.eu/pdf/en/05/st15/
st15114.en05.pdf]. Accessed July 2009.
- Council of the European Union. 2009. Presidency Conclusions meeting June 18th /19th, (11225/09).
- efama. 2008. efama Fact Book. Trend in European Investment Funds 6th edition.
- European Central Bank. 2004. Report on EU Banking Structures, November 2004.
- European Central Bank. 2008. Report on EU Banking Structures, November 2008.
- European Central Bank. 2008. Payment Statistics, November 2008.
- European Central Bank. 2008. Blue Book, Addendum incorporating 2008 figures.
- European Central Bank. 2008. “Population-Labour market indicators- Prices, output, demand, and labour market.” Statistical
data warehouse. Frankfurt. [http://sdw.ecb.europa.eu/browse.do?node=2120803]. Accessed August 2009.
- European Central Bank. 2009. SEPA High-Level Meeting Issues Note, 8 May 2009.
- European Central Bank. 2009. Financial Stability Review, June 2009.
- European Central Bank. 2009. Bank Lending Survey, July 2009.
- European Commission. 1999. Financial Services: Implementing the Framework for Financial Markets: Action Plan, Communication
of the Commission [COM(1999) 232], 11 May.
- European Commission. 2000. Communication from the Commission to the European Parliament and the Council. EU Financial
Reporting Strategy: the way forward [COM(2000) 359 final] 13 June.
- European Commission. 2000. Communication to the European Parliament and the Council Upgrading the Investment Services
Directive (93/22/EEC) [COM(2000)729 final], 15 November.
- European Commission. 2003. Communication to the European Parliament and the Council. A more Coherent European Contract
Law. An Action Plan [COM (2003) 68 final], 12 February.
- European Commission. 2004. The Integration of EU Mortgage Credit Markets. Report by the Forum Group on Mortgage Credit.
[http://ec.europa.eu/internal_market/finservices-retail/docs/home-loans/2004-report-integration_en.pdf ]. Accessed June 2009.
- European Commission. 2005. Green Paper on Mortgage Credit in the EU [COM (2005) 327 final], 19 July.
- European Commission. 2005. White Paper on Financial Services Policy 2005-2010 [COM(2005) 629 final]. 1 December.
- European Commission. 2006. Communication from the Commission. Review of Directive 2002/65 of the European Parliament and
the Council of 23 September 2002 on the distance marketing of consumer financial services [COM (2006) 161 final], 6 April.
- European Commission. 2006. Terms of References. Mortgage Funding Expert Group. [http://ec.europa.eu/internal_market/
finservices-retail/docs/home-loans/mfeg/tor-en.pdf]. Accessed June 2009.
- European Commission. 2006. Terms of References. Mortgage Industry and Consumer Expert Group. [http://ec.europa.eu/
internal_market/finservices-retail/docs/home-loans/miceg/tor-en.pdf]. Accessed June 2009.
- European Commission. 2006. Communication from the Commission to the European Parliament and the Council concerning
the review of Directive 94/19/EC on Deposit Guarantee Schemes
- European Commission. 2006. Communication from the Commission to the Council, the European Parliament, the Economic
and Social Committee and Committee of the Regions. A strategic review of Better Regulation in the European Union [COM
(2006) 689 final], 14 November.
- European Commission. 2007. Communication from the Commission to the Council, the European parliament, the Economic
and Social Committee and Committee of the Regions Action Programme for Reducing Administrative Burdens in the EU
[COM(2007) 23 final], 24 January.
- European Commission, DG Competition. 2007. Report on the retail banking sector inquiry. Commission Staff Working Document.
SEC(2007) 106, 31 January.
- European Commission. 2007. Green Paper on the Review of the Consumer [COM (2006) 744 final], 8 February.
- European Commission. 2007. Green Paper on Retail Financial Services in the Single Market [COM 2007 (226) final], 30April.
216

217. - European Commission. 2007. European Database for Financial Education. Brussels [http://ec.europa.eu/internal_market/fesis/
index.cfm]. Accessed June 2009.
- European Commission. 2007. Communication from the Commission on a simplified business environment for the companies
in the areas of company law, accounting and auditing [COM( 2007) 394], 10 July.
- European Commission. 2007. Communication from the Commission to the European Parliament, the Council, the European
Economic and Social Committee and the Committee of the Regions. A single market for 21st century Europe [COM 2007 (724)
final]. SEC(2007) 1517 SEC(2007) 1518 SEC(2007) 1519 SEC(2007) 1520 SEC(2007) 1521, 20 November.
- European Commission. 2007 Communication from the Commission. Financial Education [COM(2007)808], 18 December.
- European Commission. 2007. White paper on the integration of EU mortgage credit markets [COM(2007) 807 final], SEC(2007)
1683 SEC(2007) 1684, 18 December.
- European Commission. 2007. Communication from the Commission to the Council, the European Parliament, the European
Economic and Social Committee and the Committee of the Regions. A European Initiative for the development of micro-credit
in support of growth and employment [COM(2007) 708 final/2], 20 December.
- European Commission. 2008. White Paper on Damages action for breach of the EC antitrust rules [COM (2008) 165 final]
SEC(2008) 404 SEC(2008) 405 SEC(2008) 406, 2 April.
- European Commission. 2008. “IAS 39 Temporary Carve out as of January 2008.” Brussels: [http://ec.europa.eu/internal_market/
accounting/docs/ias/ias_39_carve-out.pdf]. Accessed July 2009.
- Commission Decision 2008/542/EC of 13 June 2008 setting up an Expert Group on Credit Histories, OJ L73, 3.7.2008.
- European Commission. 2008. Communication from Commission to the Council, the European Parliament, the European
Economic and Social Committee and the Committee of the Regions. ‘Think Small First’. ‘A “Small Business Act” for Europe’
[COM(2008) 394 final] SEC(2008) 2101 SEC(2008) 2102, 25 June.
- European Commission. 2008. Proposal for a Directive of the European Parliament and of the Council on consumer rights [COM
(2008) 614/3 final] SEC(2008) 2544 SEC(2008) 2545 SEC(2008) 2547, 8 October.
- European Commission. 2008. Special Eurobarometer 298. Consumer Protection in the Internal Market, Fieldwork February –
March 2008. October 2008.
- European Commission. 2008. Green Paper On Consumer Collective Redress [COM (2008) 794 final], 27 November.
- European Commission. 2008. Proposal for a Directive of the European Parliament and the Council amending Council Directives
78/660/EEC and 83/349/EEC as regards certain disclosures requirements for medium-sized companies and obligations to draw
up consolidated accounts [COM(2008) 195 final, 2008/0084(COD)], 17 April.
- European Commission. 2008. MiFID Transposition Quality Check Results of call for evidence from market participants.
- European Commission. 2008. Members of the Expert Group on Financial Education. National Strategies for Financial Education,
Brussels [http://ec.europa.eu/internal_market/finservices-retail/docs/capability/members_en.pdf]. Accessed June 2009.
- European Commission. 2008. First Meeting of the Expert Group on Financial Education. National Strategies for Financial
Education. Report, 7 October.
- European Commission. 2008. Communication from the Commission — The application of State aid rules to measures taken in
relation to financial institutions in the context of the current global financial crisis. OJ C 270/8, 25.10.2008.
- European Commission. 2008. Commission Staff Working Document. The Single Market Review: one year on SEC 2008 (3064),
16 December.
- European Commission. 2008. Communication from the Commission — The recapitalisation of financial institutions in the current
financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition. OJ C 10,
15.01.2009.
- European Commission. 2009. Financial Inclusion. Ensuring Access to a Basic Bank Account Consultation Document
[MARKT/H3/MI D(2009), 6 February.
- European Commission. 2009. Proposal for a Directive of the European Parliament and of the Council on Alternative Investment
Fund Managers and amending Directives 2004/39/EC and 2009/…/EC [COM(2009) 207 final], SEC(2009)576 SEC(2009)577,
30 April.
- European Commission. 2009. Communication from the Commission to the European Parliament and the Council. Packaged
Retail Investment Products [COM(2009) 204 final], SEC(2009) 556 SEC(2009) 557, 30 April.
- European Commission. 2009. European Financial Integration Report. Commission Staff Working Document, SEC(2009) 19 final.
- European Commission. 2009. Proposal for a Directive of the European Parliament and of the Council amending Directive
78/660/EEC on the annual accounts of certain types of companies as regards micro entities [COM(2009) 83 2009/0035(COD)],
26 February.
- European Commission. 2009. “Review of the Accounting Directives” Brussels: [http://ec.europa.eu/internal_market/accounting/
sme_accounting/review_directives_en.htm]. Accessed July 2009.
217

218. - European Commission. 2009. “Results of the Consultation on the Review of the Accounting Directives”. PowerPoint presentation.
June. Brussels: [http://ec.europa.eu/internal_market/accounting/docs/2009-results-consultation-review_en.pdf]. Accessed July
2009.
- European Commission. 2009. Communication for the Spring European Council. Driving European recovery. Volume 1, COM
(2009) 114 final, 4 March.
- European Commission. 2009. Communication for the Spring European Council. Driving European recovery. Volume 2: Annexes,
COM (2009) 114 final, 4 March.
- European Commission. 2009. ICT Policy Initiatives of the European Commission presentation by Costas Andropoulos, Brussels
9 March.
- European Commission. 2009. Speech by Jörgen Holmquist at Friends of Europe Roundtable on Electronic Payments and
Competition in Europe, Brussels 17 March 2009
- European Commission. 2009. Communication on the Treatment of Impaired Assets in the Community Banking Sector, OJ C 72,
26.03.2009.
- European Commission. 2009. Communication - The return to viability and the assessment of restructuring measures in the
financial sector in the current crisis under the State aid rules.
- European Commission. 2009. White Paper final by the European Commission on Professional Cross-Border Transportation of
Euro Cash by Road between Member States in the Euro Area, COM(2009) 214, 18 May 2009.
- European Commission. 2009. Communication on European Financial Supervision, COM(2009) 252 final, 27 May.
- European Commission. 2009. Communication from the Commission to the Council, the European Parliament, the European
Economic and Social Committee and the Committee of the Regions. A Shared Commitment for Employment [COM(2009) 257
final], 3 June.
- European Commission. 2009. Consultation of the European Commission Internal Market and Services DG on Possible
End-Date(s) for SEPA Migration, MARKT/H3/VM D(2009), 8 June.
- European Commission. 2009. Working Document of the Commission Services (DG Markt). Consultation Paper on the UCITS
Depositary Function.
- European Commission, DG Competition. 2009. DG Competition’s review on guarantee and recapitalization schemes in the
financial sector in the current crisis.
- European Commission. 2009. “Consolidated list of persons, groups and entities subject to EU financial sanctions”. Brussels
[http://ec.europa.eu/external_relations/cfsp/sanctions/list/consol-list.htm]. Accessed June 2009.
- European Commission. 2009. Mortgage Credit. Studies. Brussels [http://ec.europa.eu/internal_market/finservices-retail/
credit/mortgage_en.htm#studies]. Accessed June 2009.
- European Commission. 2009. DG Internal Market and Services Study on Credit Intermediaries in the Internal Market. Final
Report by Europe Economics. [http://ec.europa.eu/internal_market/finservices-retail/docs/credit/credit_intermediaries_report_en.pdf].
Accessed June 2009.
- European Commission. 2009. Mortgage Credit. Archives. Brussels [http://ec.europa.eu/internal_market/finservices-retail/
credit/mortgage_en.htm#archives]. Accessed June 2009.
- European Commission. 2009. Study on Equity Release Schemes in the EU. Part 1: General Report. By Institut für Finanazdienst-
leistungen e.V. [http://ec.europa.eu/internal_market/finservices-retail/docs/credit/equity_release_part1_en.pdf]. Accessed June 2009.
- European Commission. 2009. Consultation Document. Review of Directive 94/19/EC on Deposit Guarantee Schemes.
- European Commission. 2009. Consultation on a draft proposal for a Directive of the European Parliament and of the Council
amending Directives 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to
trading and 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose
securities are admitted to trading on a regulated market.
- European Commission. 2009. Call for evidence. Review of Directive 2003/6/EC on insider dealing and market manipulation.
- European Commission. 2009. Proposal for a Directive of the European Parliament and of the Council amending Directives
2006/48/EC and 2006/49/EC as regards banks affiliated to central institutions, certain own funds items, large exposures,
supervisory arrangements, and crisis management [SEC(2008) 2532] [SEC(2008) 2533]; European Parliament Resolution adopted
on 6 May 2009; forthcoming publication in the OJ. [CRD 2]
- European Commission. 2009. Proposal for a Directive of the European Parliament and of the Council amending Directives
2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory
review of remuneration policies SEC(2009) 974 final SEC(2009) 975 final; 13.07.2009 [CRD 3].
- European Commission. 2009. Consultation regarding further possible changes to the Capital Requirements Directive
[Consultation for CRD 4], 24 July.
218

219. - European Commission. 2009. Code of Conduct. Brussels [http://ec.europa.eu/internal_market/finservices-retail/home-loans/
code_en.htm]. Accessed June 2009.
- European Commission. 2009. FIN-NET. Financial Dispute Resolution Network. [http://ec.europa.eu/internal_market/fin-net/
docs_en.htm]. Accessed in June 2009.
- European Commission and European Central Bank. 2009. Joint statement by the European Commission and the European
Central Bank clarifying certain principles underlying a future SEPA direct debit (SDD) business model. SEC (2009) 397, 24 March.
- European Commission. 2009. Commission Communication to the European Parliament, the Council, the European Social and
Economic Committee and the Committee of the Regions on Europe’s Digital Competitiveness Report – Main achievements of
the i2010 strategy 2005-2009, COM(2009) 390, 4 August.
- European Financial reporting Advisory Group (EFRAG). 2008. “Re: ED of a Proposed IFRS for Small and Medium-sized Entities”.
Letter February 7. Brussels: [http://www.efrag.org/files/EFRAG%20public%20letters/IFRS%20for%20SMEs/EFRAG%20Output/
EFRAG%20CL%20on%20ED%20IFRS%20for%20SMEs%20(07.02.2008).pdf] Accessed July 2009.
- European Union’s Council of Ministers for Economy and Finance (ECOFIN). 2007. Conclusions of the 2813th meeting of 10 July
2007. 11464/07 (Presse 160).
- European Union’s Council of Ministers for Economy and Finance (ECOFIN). 2008. Conclusions of the 2894th meeting of
7 October 2008. 13784/08 (Presse 279).
- European Union’s Council of Ministers for Economy and Finance (ECOFIN). 2009.Conclusions of the 2922nd meeting of
10 February 2009. 6069/09 (Presse 32).
- European Union’s Council of Ministers for Economy and Finance (ECOFIN). 2009. Conclusions of the 2948th meeting on
9 June 2009. 10737/09 (Presse 168).
- European Union’s Council of Ministers for Economy and Finance (ECOFIN). 2009. June 9th ECOFIN report to the European
Council as regards the effectiveness of the financial support systems. 10772/09 and 10772/09 Addendum.
- Eurostat. 2008. “Total Population at 1 January.” Site 3-TGM table. Frankfurt. [http://epp.eurostat.ec.europa.eu/tgm/
table.do?tab=table&init=1&plugin=1&language=en&pcode=tps00001]. Accessed August 2009.
- Eurostat. 2009. Statistics in Focus.
- French Presidency Council of the European Union. 2008. Competitiveness Council: Political Agreement on the SBA, establishment
of an antion plan for European SMEs. Brussels [http://www.eu2008.fr/impressionPDFe93d.pdf?url=%2FPFUE%2Flang%
2Fen%2Faccueil%2FPFUE-12_2008%2FPFUE-01.12.2008%2Fconseil_competitivite__principaux_resultats]. Accessed June 2009.
- Study Group on a European Civil Code and the Research Group on EC Private Law (Acquis Group). 2009. Principles, Definitions
and Model Rules of European Private Law. Draft Common Frame of Reference (DCFR). Outline Edition, Munich
[http://webh01.ua.ac.be/storme/2009_02_DCFR_OutlineEdition.pdf]. Accessed June 2009.
4. Non-Legislative texts adopted by international organizations and bodies
- Financial Accounting Standards Board (FASB). 2009. “Proposed FSP FAS 157-e, Determining Whether a Market Is Not Active
and a Transaction Is Not Distressed.” Board Meeting Handout. April 2. Connecticut; USA: [http://www.fasb.org/board_handouts/
04-02-09.pdf]. Accessed July 2009.
- International Accounting Standards Board (IASB). 2007. “IASB published draft IFRS for SMEs”. Press Release February 15.
London: [http://www.iasb.org/NR/rdonlyres/CFC99B13-BF3C-4B71-AEF8-5B2960C16C2C/0/PRonSMEsED15Feb07.pdf].
Accessed July 2009.
- International Accounting Standards Board (IASB). 2007. “IASB launches field tests of SME exposure draft”. Press Release June
18. London: [http://www.iasb.org/NR/rdonlyres/B60A8709-0388-4B3A-8865-6A8081481D87/0/PRonSMEfieldtests.pdf ].
Accessed July 2009.
- International Accounting Standards Board (IASB). 2007. Exposure Draft International Financial Reporting Standard for Small and
Medium-sized Entities, Comments to be received by 1 October 2007. London: [http://www.iasb.org/NR/rdonlyres/
DFF3CB5E-7C89-4D0B-AB85-BC099E84470F/0/SMEProposed26095.pdf]. Accessed July 2009.
- International Accounting Standards Board (IASB). 2009. Exposure Draft Financial Instruments: Classification and Measurement,
Comments to be received by 14 September 2009. London: [http://www.iasb.org/NR/rdonlyres/D1598224-3609-4F0A-82D0-
6DC598C3249B/0/EDFinancialInstrumentsClassificationandMeasurement.pdf]. Accessed July 2009.
219

220. - International Accounting Standards Board (IASB). 2009. Exposure Draft ED/2009/5 Fair Value Measurement, comments to be
received by 28 September 2009. London: [http://www.iasb.org/NR/rdonlyres/C4096A25-F830-401D-8E2E-
9286B194798E/0/EDFairValueMeasurement_website.pdf]. Accessed July 2009.
- International Accounting Standards Board (IASB). 2009. Basis for Conclusions on Exposure Draft, Fair Value Measurement,
Comments to be received by 28 September 2009. London: [http://www.iasb.org/NR/rdonlyres/D55E0BA1-5420-456B-8CCC-
EB488BAD5B80/0/EDFairValueMeasurementBC_website.pdf]. Accessed July 2009.
- International Accounting Standards Board (IASB). 2009. “IFRS for SMEs”. London: [http://www.iasb.org/Current+Projects/
IASB+Projects/Small+and+Medium-sized+Entities/Small+and+Medium-sized+Entities.htm]. Accessed July 2009.
- International Accounting Standards Board (IASB). 2009. IASB publishes IFRS for SMEs Press release. London
[http://www.iasb.org/NR/rdonlyres/F4FFF721-62A4-4E02-BCB7-A0BD7A6D4FF8/0/PRIFRSforSMEs.pdf] July 2009.
- International Accounting Standards Board (IASB). 2009. “IFRS for SMEs”. London: [http://www.iasb.org/Current+
Projects/IASB+Projects/Small+and+Medium-sized+Entities/Small+and+Medium-sized+Entities.htm]. Accessed July 2009.
- Security Council. 2004. Resolution 1540 (2004) adopted by the Security Council on 28 April 2004 [S/RES/1540 (2004)], 28 April.
- The International Organization of Securities Commissions (IOSCO). 2008. Amendments to the Code of Conduct Fundamentals
for Credit Rating Agencies (Code of Conduct), IOSCO/MR/006/2008, 28 May.
5. Other Literature and any other sources
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internal market” (25 March 2009), Danmarks Nationalbank Working Paper.
- Ayadi, Rym, Reinhard H. Schmidt and Santiago Carbó Valverde. 2009. Investigating Diversity in the Banking Sector in Europe:
The Performance and Role of Savings Banks. Centre for European Studies.
- Brunnermeier, M., A. Crockett, C. Goodhart, A. Persaud and H. Shin. 2009. The Fundamental Principles of Financial Regulation.
London, Centre for Economic Policy Research.
- Capgemini Consulting. 2008. SEPA: Potential Benefits at Stake - Researching the impact of SEPA on the payments market and
its stakeholders.
- Civic Consulting. 2009. Analysis of the Economic Impact of Directive 2002/65/EC concerning the distance marketing of consumer
financial services on the conclusion of cross-border contracts for financial services between suppliers and consumers within the
Internal Market. Final Report to the European Commission, DG Health and Consumer Affairs.
- de Larosière, J., L. Balcerowicz, O. Issing, R. Masera, C. Mc Carthy, L. Nyberg, J. Pérez and O. Ruding. 2009. Report by the High
Level Group on Financial Supervision in the EU [de Larosière Report].
- Deutscher Sparkassen Verlag. 2009. Stock Market Learning, Stuttgart. [http://www.planspiel-boerse.com/toplevel/
englisch/index.htm]. Accessed June 2009.
- Egmont Group. 2009. “The Egmont Group”.[www.egmontgroup.org]. Accessed June 2009.
- ESBG. 2006. ESBG Response to the European Commission’s Consultation on the Interim Report II: Current Accounts and Related
Services, in context of the European’s sector inquiry into retail banking (completed in 2007). http://www.esbg.eu/uploadedFiles/
Position_papers/2006-02588.pdf.
- ESBG. 2007. Examples of WBI members’ initiatives in the field of financial education, Brussels [http://www.wsbi.org/uploaded-
Files/Publications_and_Research_(WSBI_only)/financialeducation%20wsbi%20screen.pdf]. Accessed June 2009.
- European Payments Council. 2005. Crowne Plaza declaration. Brussels, 17 March 2005.
- European Payments Council. 2006. SEPA Cards Framework Version 2 (Cards-027/05 version 2.0).
- European Payments Council. 2008. SEPA Credit Transfer Scheme Rulebook (EPC125-05 version 3.2).
- European Payments Council. 2009. SEPA Core Direct Debit Scheme (EPC016-06 version 3.3).
- European Payments Council. 2009. Consultation: Draft SEPA e-Payment Framework Service Description issued 4 June
(EPC283-08 Version 1.0 draft 0.14).
- European Payments Council. 2009. Consultation: Draft SEPA e-Payments Framework e-Operating Model - High Level Definition
issued 30 April 2009 (EPC084-09 Version 1.0 draft 1.5).
- Fidessa fragmentation index. 2009. http://fragmentation.fidessa.com/stats/ Report for week ending 5 June.
- Financial Action Task Force (FATF-GAFI). 2002. “Terrorist Financing. FATF Action Plan against Terrorist Financing”. Paris
[www.fatf-gafi.org/pages/0,3417,en_32250379_32236947_1_1_1_1_1,00.html#actionplan]. Accessed June 2009.
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221. - Financial Action Task Force (FATF-GAFI). 2003. Financial Action Task Force on Money Laundering. The Forthy Recommendations.
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- Financial Action Task Force (FATF-GAFI). 2004. Financial Action Task Force on Money Laundering. Paris [www.fatf-gafi.org/
dataoecd/8/17/34849466.pdf]. Accessed June 2009.
- Financial Action Task Force (FATF-GAFI). 2008. Proliferation Financing Report. Paris [http://www.fatf-gafi.org/dataoecd/14/21/
41146580.pdf]. Accessed June 2009. Fore specific details see pp. 9-23.
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228. ESBG – The European Voice of Savings and Retail Banking
ESBG (European Savings Banks Group) is an international banking association that represents
one of the largest European retail banking networks, comprising about one third of
the retail banking market in Europe, with total assets of € 5,972 billion (1 January 2008).
It represents the interests of its members vis-à-vis the EU Institutions and generates,
facilitates and manages high quality cross-border banking projects.
ESBG members are typically savings and retail banks or associations thereof. They are
often organised in decentralised networks and offer their services throughout their
region. ESBG member banks have reinvested responsibly in their region for many decades
and are one distinct benchmark for corporate social responsibility activities throughout
Europe and the world.
The European Voice of Savings and Retail Banking
Rue Marie-Thérèse, 11 n B-1000 Brussels n Tel: +32 2 211 11 11 n Fax: +32 2 211 11 99
info@savings-banks.com n www.savings-banks.com
Published by ESBG. Copyright September 2009 ISSN 1782-396x