Procedure : 2006/2081(INI)
Document stages in plenary
Document selected : A6-0170/2006

Texts tabled :

A6-0170/2006

Debates :

PV 03/07/2006 - 14
CRE 03/07/2006 - 14

Votes :

PV 04/07/2006 - 6.16
CRE 04/07/2006 - 6.16
Explanations of votes

Texts adopted :

P6_TA(2006)0294

REPORT     
PDF 164kWORD 111k
8.5.2006
PE 370.208v03-00 A6-0170/2006

on Towards further consolidation in the financial services industry

(2006/2081(INI))

Committee on Economic and Monetary Affairs

Rapporteur: Joseph Muscat

MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION
 EXPLANATORY STATEMENT
 PROCEDURE

MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION

on Towards further consolidation in the financial services industry

(2006/2081(INI))

The European Parliament,

 having regard to the Commission Staff Working Document of 26 October 2005 on cross-border consolidation in the EU financial sector (SEC(2005)1398),

 having regard to the Commission Communication of 21 October 2005 on Intra-EU investment in the financial services’ sector(1),

 having regard to the Commission Communication of 11 May 1999, ‘Implementing the framework for financial markets: action plan’ (FSAP) (COM(1999)0232),

 having regard to the White Paper of 1 December 2005 on Financial Services Policy 2005-2010 (COM(2005)0629),

 having regard to the Directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate(2),

 having regard to the Directive 2005/1/EC of the European Parliament and of the Council of 9 March 2005 on a new organisational structure for financial services committees(3),

 having regard to Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE)(4),

 having regard to the Directives of the European Parliament and Council re-casting Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the take-up and pursuit of the business of credit institutions and Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit institutions (COM(2004)0486),

 having regard to its resolution of 28 April 2005 on the current state of integration of EU financial markets(5),

 having regard to its resolution of 21 November 2002 on prudential supervision rules in the European Union(6),

 having regard to Rule 45 of its Rules of Procedure,

 having regard to the report of the Committee on Economic and Monetary Affairs (A6‑0170/2006),

A.     whereas the economy of the EU is facing diverse challenges at the global and domestic level, such as intense competition, sluggish growth, population ageing and pension liability growth,

B.     whereas the goal of stability and security of financial markets must be equal to the effort to reduce obstacles to cross-border activities concerning financial activities,

C.     whereas strong, stable and efficient financial markets and institutions are crucial to meeting the financing needs of the EU’s various economic actors and to boosting growth and employment,

D.     whereas a stable and competitive financial services sector benefits from consumer confidence if it is based on a high level of consumer protection,

E.     whereas consolidation creates a potential for economies of scale and scope, synergies, and cost efficiencies, and, if coupled with further market integration, can encourage growth and favour investment by fostering the liquidity and efficiency of markets,

F.     whereas the role of EU and national policy makers is to set up a regulatory and supervisory framework that stimulates growth; improves the competitiveness of the EU’s economy; guarantees a level playing field; safeguards market efficiency, integrity, transparency and the stability of the financial system; and protects depositors, investors and insured persons,

G.     whereas consumer needs and diversity of choice between quality products should be the main aim of any policy in this sector,

H.     whereas adequate attention should be focused on the opinions and welfare of employees and customers, both of which are important stakeholders in financial institutions undergoing Mergers and Acquisitions (M&A),

I.      whereas unjustifiable national practices and protectionist and discriminatory measures should be tackled because they fragment the market and deprive consumers of the benefits of consolidation,

General perspectives

1.      Considers that consolidation in the financial markets is an important market trend, although not the only one, responding to growing competition at EU and global level;

2.      Considers that consolidation in financial markets should not aim to reach a particular number of financial institutions and that it must be proportionate to competition in the financial markets;

3.      Notes that M&A remain the most frequent growth strategy of financial institutions; notes also that, in a modern economy, the effects of consolidation can be achieved in many different ways, such as through commercial alliances between institutions, outsourcing or in-sourcing of back-office operations, back-office cooperation, and the creation of common infrastructures with competitors (e.g. payment clearing and settlement systems);

4.      Welcomes the positive effects of the euro and the FSAP on the integration of wholesale financial markets, on market transparency and liquidity, and on modernising and completing the EU's financial regulatory framework even though not all the consequences of the single currency to the integration of the financial markets have yet been realized;

5.      Notes that M&A and restructuring activity, which is likely to have a positive effect on competitiveness, is often accompanied by a negative perception of fear of loss of employment, which materialises at times, particularly in certain regions;

6.      Takes note of the intensive consolidation via cross-border M&A in the new Member States in the last 10 years; in this respect, also recalls the importance of sound and stable financial systems for small economies;

7.      Recalls that consolidation should not be an political objective per se, but should bring clear benefits to the economy by stimulating growth, encouraging innovation, ensuring competition, improving access to funding, allowing financial institutions to exploit synergies and cost efficiencies, and giving consumers a greater choice and better quality, while ensuring an adequate level of consumer protection;

8.      Asks for attention to be focused on the effects of consolidation in the financial sector on employment, by restructuring ownership and activities, and by outsourcing in particular; urges the sector to provide for accompanying measures that lead to retraining and qualifying financial institutions' staff to fit in with the Lisbon Strategy goals of becoming a more knowledge-intensive economy;

9.      Believes that diversity of financial institutions, which better reflects the variety of financing needs of corporate entities, SMEs and consumers, should be preserved and that, therefore, EC legislation should not favour any single type of business model or corporate structure or any single type of product over another;

10.    Considers that the architecture of financial services at EU level should be such as to guarantee the co-existence of different structures and sizes in order to provide for efficient and competitive players both at international level and within proximity networks;

11.    Believes that the diversity of financial products must be ensured in order to meet the different and shifting needs of consumers;

Barriers to cross-border consolidation

12.    Notes that due to various obstacles, the level of cross-border consolidation in the financial sector, and in the banking sector in particular, is less than the level of domestic consolidation in the EU; takes note of the barriers identified in the Commission's survey;

13.    Points out that, within the internal market, economic synergies and cost efficiencies resulting from consolidation should be achievable and should not be hampered by unjustifiable obstacles, such as tax barriers and different supervisory regimes; supports the Commission's intention to tackle these obstacles; notes the difficulties faced by financial institutions willing to achieve cost efficiencies and economies of scale and scope by selling the same or identical products across countries and calls on the Commission to examine these difficulties further;

14.    Points out that market participants should take into account their social responsibility during M&A and restructuring activity; also points out that within the process of globalisation, the only way to win the confidence of the citizens of the EU is to enhance a social market economy with more and better jobs;

15.    Acknowledges the important role of national supervisors in conducting prudential supervision and safeguarding the soundness of national financial markets and institutions;

16.    Points out that divergent national supervisory practices and standards may reduce market efficiency, increase the operating costs of those financial institutions operating across borders, and thus mitigate the beneficial effects of and ultimately fragmenting the single financial market;

17.    Is concerned that financial institutions seeking to develop their strategies at EU level are frequently confronted with costly and time-consuming regulatory and supervisory practices and differing reporting requirements;

18.    Believes that further convergence of supervisory practices and standards could diminish some of the negative effects of diverging supervisory practices and improve market efficiency; welcomes the progress achieved by the Committee of European Banking Supervisors and encourages its further work;

19.    Welcomes the progress attained by level 3 committees - 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) - in achieving greater supervisory convergence and encourages their further work;

20.    Notes that the integration on the wholesale markets has been nearly completed and, in particular, that integration on the money markets is far advanced, and that announcements of increases and decreases in interest rates are quickly and well reflected in the market prices;

21.    Regrets that several tax obstacles, in particular inter-group VAT and the lack of neutrality as well as the lack of legal certainty in the VAT treatment of financial services, diminish and often prevent synergies and cost efficiencies and calls on the Commission to formulate proposals on how to overcome these barriers;

22.    Notes that currently, substantial non-recoverable VAT costs in addition to inter-company charges to a large extent limit any possible savings from cross-border consolidation;

23.    Notes, that the current tax treatment of dividends in some Member States favours payouts of domestic rather than EU dividends; notes also that in the case of EU dividends, foreign withholding tax could remain a definitive burden for the individual shareholders and therefore causes a significant reduction in the net return of their EU foreign investment;

24.    Believes that further integration of the retail financial markets should bring greater choice of better quality products for consumers and should enable companies to sell their products across borders, without hampering competition within the EU retail financial markets; calls on the Commission to present a clear and concise strategy for integrating retail financial markets;

25.    Urges the Commission and the financial services industry to discuss further the advantages and disadvantages of the '26th regime' to financial services, which mobile EU citizens may need for their activities in other Member States, so that they are able to use service providers familiar to them and need deal only with a simple standard set of rules; urges the Commission, in particular, to define a legal basis, to secure consumer protection at a high level, and to define the required components of harmonisation and an appropriate supervisory regime;

26.    Believes that the pluralistic structure of the European banking market, on which financial institutions can take different legal forms, according to their differing business objectives, is an asset to the European economy and should not be called into question;

Regulatory and supervisory system

Market structure

27.    Notes that levels of market concentration in certain Member States raise concerns regarding the market structure, conduct and behaviour of European banks and other financial institutions;

28.    Asks that the concentration of financial markets and institutions is scrupulously examined by the Commission and by national competition authorities in compliance with the EC Treaty and the case law of the Court of Justice of the European Communities;

29.    Calls on the Commission to ensure that the relevant legislation is consistently implemented by the Member States;

30.    Asks the Commission to examine the implications of consolidation in major regional financial centres on the financing of small regions and SMEs;

Supervision

31.    Welcomes the recently adopted EU measures regarding prudential supervision, in particular the Capital Requirements Directive advancing the home country control principle and considerably changing the current supervisory framework, which now includes new provisions on the cooperation between national competent authorities, supervisory disclosure requirements, and enhanced powers for the consolidating supervisor as regards the validation of risk measurement models; believes that, in the current legislation, this move should be complemented by a clear definition and a well-balanced allocation of powers and responsibilities between home and host country supervisors, without prejudice to the review clauses contained in the directive;

32.    Notes that the transformation of the corporate structure of some major EU financial groups willing to adopt the SE model might have significant implications on the supervisors concerned; calls on the Commission to monitor the situation and to examine whether there are any implications of the SE model on prudential stability and crisis management structures;

33.    Calls on the Commission to take due account in its proposals of the difficulties experienced by certain national regulators in intervening in markets characterised by a very strong presence of foreign capital;

34.    Notes that in highly integrated financial markets, a crisis spilling over national jurisdictions cannot be tackled individually by national authorities; in this respect, considers that the current networks of national supervisors, the supervisory arrangements, and the non-legally binding memoranda of understanding may not be sufficient to face a major crisis caused by a failure of markets or important cross-border financial groups; considers that cooperation and mutual trust between supervisory authorities in a crisis event is crucial and urges the Commission and responsible national authorities to develop jointly appropriate proposals for effective crisis management for the further consideration of the Parliament;

35.    Considers that the EU's authority in international negotiations, particularly as regards bank supervision, would be reinforced by the clarification of its internal functioning;

36.    Notes that the question of the lender of last resort must be solved before it is possible to focus any further discussions about EU financial supervision; in this respect, stresses that a clear decision on responsibilities is necessary;

37.    Notes that the current supervisory system leads to multiple reporting requirements for banks and that, therefore, an important task for all supervisory institutions is to converge the standards;

38.    Believes that it is high time that the EU institutions, and particularly the Parliament, opened a debate on the structure of supervision of EU financial markets; for this reason, calls for the setting up of a committee of "wise men" to study - and report back before the end of 2006 - the implications of the consolidation of markets and financial institutions, prudential supervision, financial stability, and crisis management; in this regard, asks the committee to propose concrete ideas regarding the simplification of multiple reporting requirements and the improvement of the current structures, and, ultimately to reflect on the needs and structures of European financial supervisors;

o o

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39.    Instructs its President to forward this resolution to the Council and the Commission;

(1)

OJ C 293, 25.11.2005, p.2.

(2)

OJ L 35, 11.2.2003, p. 1.

(3)

OJ L 79, 24.3.2005, p. 9.

(4)

OJ L 294, 10.11.2001, p. 1.

(5)

OJ C 45 E, 23.2.2006, p. 140.

(6)

OJ C 25 E, 29.1.2004, p. 394.


EXPLANATORY STATEMENT

Consolidation in the financial sector is not a new phenomenon; but it has recently developed a new speed and scope following the integration of EU financial markets. At the same time it is not only a European trend but an international one driven by structural changes, technological progress and intensified global competition.

This process can take various forms, from organic growth in the form of foreign branches and subsidiaries to mergers and acquisitions. In the EU, it has been streamlined by deregulation and consistent action by European institutions in the competition field, and it has been pushed forward by the introduction of Euro, clear and well enforced competition rules and financial legislation.

Consolidation occurs at different levels. Europe is witnessing a strong market consolidation. In this respect, the recently adopted package of measures of the Financial Services Action Plan has advanced considerably wholesale market integration. Banks, insurance, and financial institutions, which used to reflect national borders and traditional separation of financial activities (such as banking, insurance and securities and asset management activities), are increasingly becoming universal as to the products and services they supply, and operate on a cross-border basis. With European integration advancing, banks and other financial institutions´ mergers and acquisitions (M&A) are almost a daily phenomenon and have resulted in giant financial groups and conglomerates operating under various European jurisdictions.

Perceptions about consolidation differ. On one hand, it is seen as an important driver enhancing the competitiveness of European economy, forging big financial groups and conglomerates, allowing companies to reach critical mass and realize important synergies, economies of scale and scope and cost efficiencies, and, most importantly, it offers consumers a greater choice and better price for their financial products.

On the other hand, there are also downside risks to consolidation, emanating from a high level of concentration, interdependence and systemic risk that can be due to a failure of major financial institutions and conglomerates operating in several Member States.

Furthermore, it is frequently felt that concentration of market power in the hands of a few major financial institutions and financial centres could deprive regions and SMEs from the most needed access to cheap financing, that robust financial groups will push smaller financial institutions out of the market and that consumers' choice will be limited to standardized products.

Current situation and perspectives

Mergers and acquisitions (M&A) are the most frequent market access and growth strategy. Although until now they have occurred mostly at national level, the existence of big cross-border groups and financial conglomerates demonstrates a significant appetite both for cross-sector and cross-border expansion throughout the EU.

Some of the most notable examples of consolidation in the banking sector took place over the last ten years in the new Member States when they experienced an intensive wave of cross-border M&A. As a result of this activity, the current structure of their financial sectors displays both a high level of concentration and foreign ownership.

Developments in some regions(1) may suggest a future intensification of cross-border activities. In the Benelux and Scandinavian regions, market saturation pressed domestic players to expand cross-border and resulted in the creation of some major European financial groups.

Existing obstacles

Many obstacles(2) hinder cross-border transactions, discourage market players and diminish cross-border synergies and economies of scale and scope and cost efficiencies. In particular:

· Differences in product mix: Differences in consumer protection rules, private law and consumer habits across EU countries make selling of the same financial product mix across Member States difficult and require that financial institutions adjust their product mix to Member state's rules, laws and habits. This may diminish economies of scale and scope, economic synergies and cost efficiencies which could have otherwise been achieved in case of relocation and centralization of some of functions of financial institutions. In this respect, advanced integration of retail financial markets, which would allow financial institutions to sell their product mix on a greater market, may stimulate cross-border activity of banks and financial institutions (M&A or cross-border provision of retail products).

· Implications of the current supervisory framework: Industry argues that the different supervisory regimes make cross-border M&A less attractive. The lengthy and costly multiple reporting requirements, supervisory approval process and the interaction between host an home supervisors can increase fixed costs of financial institutions because they result in duplication of supervision and multiply the disclosure requirements.

· Taxation: Financial institutions operating on cross-border basis have to cope with different tax regimes. VAT treatment of financial services is considered as an important obstacle offsetting possible cost efficiencies due to relocation, centralization and integration of certain functions. Moreover, the inter-group VAT is perceived as important barrier preventing banks and financial institutions to organize themselves efficiently on a cross border basis because most of them have no or only limited right to recover VAT (in other words, a cost of any acquisition of financial business has to be increased by a non recoverable amount of 15-25 %).

· Unfavourable environment: (political will, employees´ resistance, protectionist measures)

Future challenges

Market structure

The tremendous speed of structural change of the financial system and the rising number of major cross-border groups willing to compete globally accentuates the need to monitor developments in terms of market structure and concentration. In that respect a strict and consistent application of rules on competition policy together with a timely implementation of financial services legislation becomes more important.

Reflections about an adequate framework of regulation, supervision and crisis management, which would allow financial groups and conglomerates willing to operate on pan-European level to attain economic synergies without threatening stability and soundness of the financial system, also have gained a sense of urgency.

Prudential implications of consolidation

Recent trends concerning prudential supervision advance the home country control principle. The Capital Requirements Directive introduces the concept of consolidating supervisor. It says that a risk measurement model of a subsidiary located in a host Member State has to be validated on the basis of a mutual agreement between host and home supervisors. However, in the case of absence of a mutual agreement and after a six month period, this decision, which has considerable prudential and systemic implications for the host country financial system, is left to the home supervisor (consolidating supervisor). This move, which has important implications on the conduct of prudential supervision and on supervisory structures in the EU, should be complemented with a balanced and clear division of home/host supervisory responsibilities, in particular when a subsidiary in a host country encounters problems or is hit by a financial crisis. This is of particular importance for small economies.

While advancing financial integration, it is equally important to reflect on major public policy concerns. In particular, a risk of potential systemic crisis, its sources and the issue of the lender of last resort should be considered.

The current level of concentration of markets, financial actors and infrastructures in the EU is high, and so is their interdependence. In this respect, in highly integrated financial markets, a crisis which could easily spread over national jurisdictions, turn into a pan-European financial crisis and ultimately hit the stability of the Euro and European economies, can not be efficiently tackled by national supervisory authorities acting on a solo basis anymore.

The current networks of national authorities of the 25 Member States comprise various supervisory and regulatory bodies with differing powers, responsibilities and level of involvement in crisis management, and the present supervisory arrangements and non-legally binding memoranda of understanding, are not adequate and sufficient to tackle a pan- European crisis caused by a failure of markets or systemically important cross-border financial conglomerates.

In this respect, European legislators should launch in-depth discussions on the appropriate structure of supervision of EU financial markets, clarification of powers and responsibilities between home and host supervisors and adequate crisis management procedures, and not wait for a major pan-European crisis.

(1)

Commission Staff Working Document SEC(2005) 1398.

(2)

Commission Staff Working Document SEC(2005) 1398.


PROCEDURE

Title

Towards further consolidation in the European financial services industry

Procedure number

2006/2081(INI)

Committee responsible

        Date authorisation announced in plenary

ECON
6.4.2006

Committee(s) asked for

opinion(s)
  Date announced in plenary

 

 

 

 

 

Not delivering opinion(s)
  Date of decision

 

 

 

 

 

Enhanced cooperation
  Date announced in plenary

 

 

 

 

 

Rapporteur(s)
  Date appointed

Joseph Muscat

4.7.2005

 

Previous rapporteur(s)

 

 

Discussed in committee

31.1.2006

20.3.2006

19.4.2006

 

 

Date adopted

25.4.2006

Result of final vote

+

-

0

35

2

1

Members present for the final vote

Zsolt László Becsey, Pervenche Berès, Pier Luigi Bersani, Sharon Bowles, Udo Bullmann, Ieke van den Burg, David Casa, Jan Christian Ehler, Elisa Ferreira, Jean-Paul Gauzès, Robert Goebbels, Karsten Friedrich Hoppenstedt, Sophia in 't Veld, Othmar Karas, Wolf Klinz, Christoph Konrad, Guntars Krasts, Kurt Joachim Lauk, Astrid Lulling, Gay Mitchell, Cristobal Montoro Romero, Joseph Muscat, John Purvis, Alexander Radwan, Bernhard Rapkay, Eoin Ryan, Peter Skinner, Margarita Starkevičiūtė, Sahra Wagenknecht, John Whittaker

Substitute(s) present for the final vote

Jorgo Chatzimarkakis, Harald Ettl, Satu Hassi, Ján Hudacký, Werner Langen, Thomas Mann, Corien Wortmann-Kool

Substitute(s) under Rule 178(2) present for the final vote

Íñigo Méndez de Vigo

Date tabled

8.5.2006

Comments
(available in one language only)

 

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