ECB Governing Council member Makhlouf: resilience is not a cost of competing
Serguey Asael Shinder2 min readGabriel Makhlouf, Governor of the Central Bank of Ireland and a member of the ECB Governing Council, used a speech at the Eurofi Financial Forum on 17 September, published by the BIS on 24 September, to push back against the argument that Europe's banks would compete better under lighter rules.
Resilience is not a constraint on competitiveness but the precondition for it, he said, adding that the financial crisis showed what happens when regulators optimise for competitiveness. He agreed that fragmentation is the central problem: the euro area has a single currency and a single supervisor, yet cross-border corporate lending remains about one-sixth of the total, because banking follows customers and most European companies do not operate at scale across borders. He named a European Deposit Insurance Scheme as key, and pointed to divergent insolvency regimes, fragmented digital infrastructure and different employment rules as bigger obstacles than capital requirements.
On capital he drew a line. He said he was not convinced the level of capital is part of the problem and that the evidence does not support it, but that requirements have become layered in ways that can make buffers hard to use when needed. Asking supervisors to weigh the competitiveness of the financial sector against their mandates would, he said, be a mistake.
On markets, he said the constraint is not the amount of capital, comparing Mario Draghi's estimate of EUR750 billion to EUR800 billion a year in extra investment needs with about EUR10 trillion held in European cash deposits. Savings flow abroad because investors expect better returns there. A single capital market ultimately requires a single safe asset, a question he said is not for central bankers to settle, and payments should keep central bank money at their core, including through the digital euro.
What it means
Simplification is now the organising word of European banking policy, and the argument is about what it means. Makhlouf's version separates two things: simplify the structure of the rules, but do not lower the level of capital. That puts a Governing Council member on record against using the competitiveness agenda to relax requirements.