Together for a growing and more integrated europeSavings and retail banks’ drive to help Europeans prosper.

European Savings and Retail Banking Group - aisblRue Marie-Thérèse, 11 • B-1000 Bruxelles • Tel: + 32 2 211 11 11 • Fax: + 32 2 211 11 99

E-mail: first name.surname@wsbi-esbg.org •Website: www.esbg.eu

TOGETHER FOR A GROWING AND MORE INTEGRATED EUROPESavings and retail banksʼ drive to help Europeans prosper.

European Savings and Retail Banking Group - aisblRue Marie-Thérèse, 11 • B-1000 Bruxelles • Tel: + 32 2 211 11 11 • Fax: + 32 2 211 11 99

E-mail: fi rst name.surname@wsbi-esbg.org •www.wsbi-esbg.org

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CONTENTS

Preface: Together for a growing and more integrated Europe 4

About ESBG 6

How to improve financing growth and sustainable development 7

Financial stability 9

Innovation and digitalisation: The need for an innovation-friendly level playing field 11

Financial inclusion and financial education: Well-establishedactivities need to be proceeded 12

The 20th anniversary of the euro: the commoncurrency of a strong Europe 13

ESBG: 26 members in 21 countries. 14

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The European project faces strong head-winds. Brexit provides a serious warning sign. Social movements in EU Member States are sprouting up in all shapes, sizes and colours. These events point to a reaction to rapid changes and disruptions caused by the cogs that move globalisation and technological breakthroughs that shape our lives. But there is pushback. Many feel isolated, left behind

not only economically, but also politically and socially. There is common concern by people that the world is uprooting the cul-tural and social roots that have thrived at lo-cal and regional level. How can society best address this integration and growth shortfall and boost people’s participation in econom-ic and community life?

Savings and retail banks: 1,000 strong, serving one-third of all Europeans

Savings and retail banks in 21 European countries can help answer this question. Composed of roughly 1,000 banks and serv-ing 190 million European citizens, they form the European Savings and Retail Banking Group (ESBG). Committed to Europe and the Single Market, they remain steadfast in the promise that the European Union makes all people in it stronger. They acknowledge that it ensures peace, fosters exchange across national borders and thereby pro-

motes economic prosperity, something they care about deeply. For these and many oth-er reasons, ESBG advocates for fair compe-tition within the European Union. Savings and retail banks seek to contribute to a vi-able social consensus – one that will further strengthen the European Union, serving the interests of EU citizens by putting people and their values first rather than just share-holder value.

Regionally focused, grass-roots oriented

Regionally focused savings banks and local-ly focused retail banks make a substantial contribution to growth, stability and pros-perity in Europe. They are part of the local infrastructure that opens up the potential for local economic and social development. By doing so, they buttress stability within local communities and provide local insight. Sav-ings and retail banks are a major source of

finance for families and individuals, small and medium-sized enterprises, community insti-tutions and local infrastructure, opening up the potential for grass-roots development. In fact, one third of Europeans seeking bank-ing services come to ESBG member banks. Those members have some €500 billion in SME loans on their books in the European Union, roughly equal to a third of the market.

PREFACE: TOGETHER FOR A GROWING AND MORE INTEGRATED EUROPE

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This locally focused banking model is the cornerstone of a properly functioning eco-nomic machine. That is achieved through regional structures through efforts to ensure good business conditions for SMEs and by facilitating access to financial services for everyone as a precondition for economic participation. Members contribute signifi-cantly to financing the real economy, and they ensure that modern banking services

are also available in rural areas. This fuels competition throughout Europe, which is beneficial to customers and fosters more equitable living conditions in EU regions. An essential structural element of the Euro-pean economic and social model, they can help to create a favourable environment for long-term economic growth that is inclusive and sustainable.

How the European Union can help: Proportionality, subsidiarity and diversity

Europe’s 1000 savings and regional retail banks cannot go it alone. The European Union can help their model thrive. That means strengthening the banking structures that have evolved over time, such as sav-ings, retail, private and cooperative banks.

An ever-closer union is possible when an-chored by proportionality, subsidiarity and room for diversity. When these three prin-ciples are in play, so too is a robust banking sector, which benefits EU citizens – the peo-ple ESBG members serve every day.

“United in Diversity” is the slogan of the Eu-ropean Union. ESBG couldn’t agree more. A diverse Europe will remain an asset and should be preserved. Uniformity does not create financial stability.

Diversity forms the backbone of the vari-ous economies in Europe and should be ensured when steps are taken to deepen the Economic and Monetary Union. On this front, the quest for greater union provides scope for solutions at both European and regional level. Because not every problem in Europe falls in the basket of items to be addressed by the European Union.

There is need for savings and retail banks in Europe to play an even more important role. They are ready and able to continue contrib-uting to what Europeans crave: a growing, integrated and more prosperous Europe.

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ESBG helps savings and retail banks in 21 European countries strengthen their unique approach that focuses on providing service to local communities and boosting SMEs.An advocate for a proportionate approach to

banking rules, ESBG unites at EU level some 1,000 banks. ESBG members are committed to further unleash the promise of sustain-able, responsible 21st century banking.

Retail, Regional, Responsible

The identity of our members is defined in our Common Code:

“Financing the real economy. We safe-guard deposits and put them to work through effective and responsible lending. Retail banking serves the various financial needs of individuals, households, small and medium-sized businesses across all sectors, and local authorities – that is what makes it unique. We provide a broad range of retail products and services that improve the fi-nancial well-being of our customers.

Fostering close, interactive relationships with the customers and communities we serve. We reach out to customers and use a wide range of easy-to-use channels to pro-vide the services they need – whether they live in rural areas, the heart of a metropolis or anywhere in between. We also maintain a close, synergistic relationship with the community as a whole. We participate as responsible members of the community we serve, engaging in socially responsible en-deavours that bring real benefit to society. We favour local decision-making and set the highest business and ethical standards.

Taking a “double bottom line” approach to banking. We balance the need for finan-cial sustainability and a return to society. We abide by fair and transparent corporate gov-ernance and nurture fair and clear relations with our customers. Promoting financial in-clusion is part of our heritage and remains core to our mission today. We promote fi-nancial education policies and instruments to the communities we serve. We commit to becoming environment-friendly businesses that invest responsibly by integrating prop-er environmental, social, governance and ethical values into all of our financial analysis and decision-making. And we look after our own: we treat all our employees fairly and equally, with dignity and respect, and rec-ognise their merit. Only in this way will our businesses endure.”

ABOUT ESBG

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SME financing: Capital Markets Union must be complementary to bank loans

Europe faces financially, economically and socially challenging times. Given this back-drop, nourishing growth and jobs in Europe comes from targeted funding for SMEs and microenterprises. In fact, 75% of Europe-an SMEs prefer loans by credit institutions like savings and retail banks as the prima-ry source for external funding. Finding the best way to finance the real economy – and specially SMEs – remains a priority for Eu-ropeans and EU policymakers alike.

This is where savings and retail banks in Eu-rope can help. Backed by their long-stand-ing experience in the regions, their wide network and proximity to the local compa-nies enables them to build an irreplaceable knowledge and trustworthy relationships. It also puts savings and retail banks in an ideally placed position to help empower the economy and boost sustainable, inclu-

sive and smart growth by granting loans to SMEs. Stimulating bank lending to SMEs and avoiding unnecessary regulatory ob-stacles should be a policy priority.

On the Capital Markets Union, ESBG and its members see a need for financing from capital markets and supports the EU proj-ect. CMU is a supplementary vehicle, how-ever, not a primary path to support SME fi-nancing. Capital markets can complement, but not replace, the role of bank lending, which remains in high demand amongst SMEs due to its non-complex nature. Sub-stituting bank lending for capital markets works against the demands of SME financ-ing needs. A policy of complementarity remains the best way forward to create a stronger and more competitive European Union.

Sustainable finance: Sustainable means more than green

Climate change is urgent. The environment is reeling. To address both, European de-cision-makers have rightly set the aim to channel more funds into sustainable proj-ects. Overall, ESBG warmly welcomes the objective to channel more funds into sus-tainable projects. This should be done by giving true incentives to the real economy, private households and SMEs to make sus-tainable solutions attractive at local, national

and global levels. European policy-makers have adeptly pointed out that widespread short-termism of financial markets con-tradicts the concept of sustainability and a long-term approach needs to be taken.

A long-term mindset also forms the corner-stone of Europe’s savings and retail banks’ business model. That mindset explains why ESBG members are highly active in sus-

HOW TO IMPROVE FINANCING GROWTH AND SUSTAINABLE DEVELOPMENT

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tainable finance. They provide the financial means to private households, SMEs and local authorities financing for low-hanging fruits such as renewable energy, energy ef-ficiency in housing, production and building renovation. Banking institutions must fulfil their functions in this respect.

Unproportionate regulatory and administra-tive burdens that hinder access to finance should be reduced in the existing regulatory framework and avoided in any future legisla-tion on sustainable finance in the European Union. By weaving in proportionality, rules on sustainable finance can achieve the aims of sustainable and inclusive growth.

In this regard, we would like to point out that retail banking activities are fundamen-tally different from wholesale banking activi-ties regardless of size. In addition, the differ-ences between banking, asset management and insurance have to be fully considered and taken into account. ESBG therefore urges policy-makers to design sustainable finance policies adapted to the specificities of retail banking and supportive of a diversi-fied banking sector. ESBG also encourages them to adopt legislative steps in the right order. It is important to underline that un-necessary administrative burdens should be avoided as they would be counter-produc-tive and hinder the market for ESG products. Legislative initiatives should always include cost-benefit and impact analyses, pursuant to the better regulation principles, so as to ascertain that greening the economy is fully coherent with the social aims supported by retail banks, sustaining local communities and SMEs, which is most crucial for innova-tion and job creation.

As observed by the High-Level Expert Group (HLEG), appointed by the Commission, the transformation of the EU economy at the

end of the day must take place in the real economy itself. ESBG menber banks are will-ing to support the endeavour, but they are not the decisive lever for a transformation to more sustainability. It must be clear that this only can happen if fundamental behavioural patterns by people within the real economy change. That means in private households as well as public and private enterprises. EU policy makers will have to create awareness of the needs, enabling regulation and giv-ing incentives for the real economy, private households and individuals, and SMEs to go for sustainable options.

A gradual shift towards a sustainable future should be embraced throughout the Euro-pean initiatives on this topic with a clear-cut framework able to create an orderly transi-tion, avoiding counterproductive complex-ity. The EU’s sustainable finance package should also provide for a common under-standing of what is sustainable and promote increased transparency to the benefit of the consumer.

But , sustainable means more than “green”. In its Action Plan on Financing Sustainable Growth, the European Commission rightly points out that the concept of sustainability rests on environmental and social consider-ations alike. Social considerations may refer to issues such as inequality, inclusiveness, investment in human capital and communi-ties. It may also include access to finance, areas where savings banks traditionally are particularly strong, contributing to open-ing-up local development potentials and fostering social cohesion in the communi-ties.

It is of utmost importance to highlight the social dimension of sustainable finance. Eu-ropean institutions should also make sure that regulation around sustainability always

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takes into account the social impact of the policy measures. One must avoid policy side effects that might, for example, restrict access to financial services for both private

households and for enterprises, or cause unwanted social effects. Whatever is decid-ed for Europe must be helpful in achieving the objectives.

Proportionality: Less risk must lead to less bureaucratic burdens

It is crucial that current and new legislation is applied in a proportionate way to all fi-nancial institutions. That means policy that takes into account a bank’s size, the nature of their activities, complexity and business model (such as savings, retail, private and cooperative banks).

Proportionality is needed because savings and retail banks as members of ESBG have had to adapt to administrative burdens that were originally designed to regulate large global players with a completely different risk profile. With this in mind, and in the interest of effective and efficient banking regulation, the principle of proportionali-ty has to be recognised and used at every step of the legislative and regulatory pro-cess so that existing and new legislation and regulations are applied to banks and

financial institutions in a proportionate way.

Different regulatory regimes for different banking models would help local and re-gional banks to compete on an equal foot-ing while ensuring compliance with stan-dards being set at international level and help by curtailing the increasingly distor-tional effects of regulation. This would allow for a level playing field, promote growth – and therefore increase jobs – and in turn contribute at EU level to the further devel-opment of the Single Market as well as to financial stability. It is vital that all banks are able to carry out daily, less-risky activities, to which more proportionate regulation can contribute. The big beneficiary of more proportionate regulation will be, inter alia, households and SMEs, who will have easier access to finance.

Basel rules: Let’s adapt the Basel rules to EU specificities

The Basel agreements provide a perfect example of rules designed in the first place for large, international banks. Both small-er European banks, which use standardised approaches to measure risk, and larger Euro-

pean banks that use internal models, would be severely affected by the reform. If the final rules of the Basel III agreement are to be ap-plied to every single bank in Europe, they are quite likely to increase banks’ cost of capital,

FINANCIAL STABILITY

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in particular low-risk banks. The additional costs and lost risk sensitivity for banks are likely to be passed on to the wider econo-my through higher prices for low-risk credit and reduced lending. This effect will not be uniform across classes of borrowers. Anal-ysis from various sources indicate that mid-size companies without an external rating or which are not listed on a stock exchange, but that do not qualify for the definition of small and medium-sized enterprises (SMEs), are likely to be hit especially hard. The reform is also expected to have a significant impact on mortgage lending.

Against this background, and regarding the adaption of the international Basel stan-dards in European law, it is essential that the law reflects national and European par-ticularities. Most importantly, its implemen-tation within the EU regulatory framework should reflect the proportionality principle taking into consideration the nature, scale and complexity of the activities of European credit institutions. When implementing the latest Basel rules, Europe should develop an approach that duly takes into consideration the European specificities.

Diversity: Customers of all kinds need a financial partner that fits

Savings and retail banks of all sizes and legal forms play an essential role in providing the diversity crucial to maintain the stability of the financial system. Preventing the concen-tration of economic and financial resources in the hands of the few is paramount to a fi-nancial system that serves the greatest pos-sible number of people and businesses.

A pluralistic and diverse banking sector across the EU, composed of banks with their own specific business models, ownership structures and governance arrangements,

fuels competition, enhances overall bank-ing system efficiency and helps the system overcome shocks. The manifold structure of the European banking sector now in place encourages banks to compete, improving their process and structures to better adapt.

A diverse banking sector fosters a European social and economic model that combines economic growth with high living standards and good working conditions. It serves best the different needs of people.

Anti-Money Laundering (AML): Enhanced cooperation between local regulators is the next step

ESBG fully supports preventing money laun-dering and curbing terrorist financing.

Legislation to AML has flourished, with more regulation that is increasingly stringent. But criticism has been levelled at the EU for the low level of harmonisation of AML rules. Ex-

isting national specificities make harmon-isation elusive. That said, some AML rules could be vital for local business.

Given this national ”dissonance“ with ap-plying European rules, AML supervision at EU level must require one to listen more to

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experienced national supervisors. Enhanced cooperation between local regulators – as well as between supervisors and the private sector – would be the best next step. Knowl-edge building is crucial too. In our capacity as key private sector stakeholders, ESBG and

its members are committed to contribute with their knowledge from the terrain so that lines between money laundering typologies are not blurring, notably due to risks around greater use of technology that could lead to significant ‘intelligence gaps’.

Digitalisation and FinTech – also called finan-cial technology – are impacting the financial services sector and foster new opportunities to serve the client better. Despite the prom-ise of technology, there are also challenges. One challenge is finding the right balance

within the regulatory and policy framework to fuel innovation. Also topping the list are ways to foster cybersecurity and data pro-tection and to ensure a level-playing field whilst still allowing for competitive markets and high levels of consumer protection.

FinTech: Technology-enabled innovation in financial services

As a vital underpinning of all digitalisation and innovation policy efforts, it is of utmost importance to define FinTech as “technolo-gy enabled innovation in financial services”. This definition is important for levelling the playing field as financial institutions of all sizes who provide a comprehensive range of services, such as ESBG members, have been active innovators for some time. To get even closer to the people they serve, ESBG mem-bers value the potential of FinTech, and they make use of many existing FinTech solutions by investing in financial technology or via partnerships with other FinTech firms and start-ups.

A prerequisite for the future of financial in-novation and a level playing field is to en-sure both consumer protection and finan-cial stability, especially with regards to data protection and cybersecurity threats. To do this, it is necessary to maintain technologi-

cal neutrality and a level playing field across regulation and regions, foremost the EU Members States. New market entrants mak-ing use of financial technology often have a very low and gentle legislative framework, which is problematic. This offers the poten-tial to be detrimental to consumers as the protection afforded to them by applicable law does not apply when dealing with un-regulated new entrants.

Non-European giants are entering and strengthening their positions on the Eu-ropean market, leveraging opportunities brought by the emergence of new technol-ogies. Whilst digital platforms have brought about numerous benefits, their rapid growth also generates numerous concerns and chal-lenges – issues that need to be taken seriously especially since these platforms expand into offering financial services.

INNOVATION AND DIGITALISATION: THE NEED FOR AN INNOVATION-FRIENDLY LEVEL PLAYING FIELD

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A level playing field is especially required when it comes to access to data. In this area, con-ditions need to be the same for incumbents, smaller players and larger “BigTechs”. Cases occur of BigTech companies denying the banking industry access to their software/hardware-interfaces. That behaviour illustrates the necessity of a refurbished and tailored legal framework to create a level playing field

and enhance competition in digital financial services like voice banking or mobile payment. It has to be highlighted that the second pay-ment services directive has generated an unlevel playing field situation, not favourable to the European sovereignty, giving access to the banking infrastructure to the BigTech firms (non-European) seeking entrance in the banking market with full force.

It is of utmost importance to foster entrepre-neurship, numeracy skills and other skills re-lated to financial matters. Doing so provides citizens, particularly the youth, with the nec-essary tools to succeed in life. Raising levels of financial literacy is the way forward when it comes to making societies more inclusive and boosting citizen empowerment, ulti-mately contributing to reaching the Sustain-able Development Goals, approved by the United Nations General Assembly. Goal 4, regarding qualitative education, is especial-ly important. There is no doubt that financial education leads to sound financial inclusion.

There is need to empower citizens – and par-ticularly youth – to succeed in economic life, to understand complex financial moments such as the transfer from a defined benefit pen-sion schemes into the contribution pension schemes. People need to grasp the problem of over indebtedness, and 21st century topics related to financial innovation and digitalisa-tion, the emergence of cryptocurrencies with growing consumer and investor protection concerns. There are more nuanced topics that also require information to educate people, such as the emerging information asymme-try between businesses and consumers, the increasing responsibility on households, the need for a more sustainable finance.

Financial education: Deep commitment from ESBG and its members

Financial education lies at the very heart and core of ESBG and its members. ESBG sup-ports – together with its sister organisation, the World Savings and Retail Banking Institute, or WSBI – an inclusive form of globalisation that is just and fair and supports international ef-forts to advance financial access and financial usage for everyone. Financial education plays an important role here. Since its inception, WSBI-ESBG has actively worked to promote fi-

nancial education in different ways. Take World Savings Day, an initiative started by members in 1924, or the European Stock Market Learning. The bulk of the activities is provided on the lo-cal level where a wide range of initiatives of our members is permanently taking place aimed at not only preventing social and economic exclu-sion, but also providing citizens with a better knowledge of financial issues, helping them make informed choices.

FINANCIAL INCLUSION AND FINANCIAL EDUCATION: WELL-ESTABLISHED CTIVITIES NEED TO BE PROCEEDED

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Financial education efforts must imply a shared responsibility between all actors: private and public bodies, educational and financial institu-tions, NGOs, the academic sector, consumers and other stakeholders reflecting a joint com-mitment between them. This clearly is a task for society as a whole.

Although education policies belong mainly to the remit of the Member States, the Europe-an Parliament can play an especially important promoting role by providing, for example, fora for policy discussions with stakeholders and ex-change of excellent practices. ESBG is interest-ed in an intensive dialogue with the European policymakers on these issues.

THE 20TH ANNIVERSARY OF THE EURO: THE COMMON CURRENCY OF A STRONG EUROPE

European Monetary Union (EMU) has enjoyed overall success. A natural part of European’s daily life, it has helped keep inflation under control, mitigate currency volatilities vis-a-vis other major currencies, and foster EU-trade. The euro has become the visible symbol of open borders and integration within the Euro-pean Union.

There have been difficulties as well, which have made it evident that political actors again and again have had to reconfirm stability ori-entation of their policies. The euro provides a sound foundation for growth and wealth in the years to come, but the Eurosystem must adapt to the arising challenges.

At their summit in mid-December 2018, the heads of state and government of the euro area agreed on important decisions on the further development of the European Economic and Monetary Union. The aim of the measures is to make the euro more stable and crisis-proof. To this end, the mechanisms in the EMU shall be strengthened. Very importantly, the European Stability Mechanism (ESM) will be strength-ened in order to be able to support Member States effectively and quickly in the event of a crisis. The design of the ESM into a kind of Eu-ropean Monetary Fund is intended to ensure better access of countries to the capital mar-kets, in particular through precautionary credit instruments and through a stronger role for the

ESM in the design and implementation of aid programs. It is good that there should be ef-fective and efficient cooperation between the ESM and the European Commission. The deci-sion to establish a ‘common backstop’, a back-stop for the Single Resolution Fund through the ESM, is also intended to strengthen finan-cial stability. Together with the so-called, re-cently adopted banking package, the banking markets should become more crisis-resistant. The reduction of risks is on its way, which is able to contribute greatly to reinforcing EMU.

Europe deserves praise for growing closer to-gether thanks to a common currency that the majority of Member States uses or plans to use. A powerful and stable currency is in every Euro-pean’s interest, and an integrated and inclusive Europe needs a strong euro. ESBG supports the objective of making the euro more stable and crisis-resistant and supports the goals of the reforms that make the EMU more robust, provided that some core principles are respect-ed. That includes the capacity of savings and retail banks to finance households and SMEs, the principle of proportionality and a diversi-fied banking sector need to be ensured.

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Albania Banka Kombetare Tregtare (BKT)

Austria Österreichischer Sparkassenverband (Austrian Savings Banks Association)

Belgium Coördinatie van Belgische spaar- en netwerkbanken (Coordination of Belgian Savings and Network Banks)

Bulgaria DSK Bank

Czech Republic Ceska Sporitelna AS

Denmark Lokale Pengeinstitutter

Finland Säästöpankkiliitto (Finnish Savings Banks Association)

France Groupe BPCE; Fédération Nationale des Caisses d’Epargne

Germany Deutscher Sparkassen- und Giroverband e.V. (DSGV) (German Savings Banks Association)

Hungary OTP Bank plc

Iceland Samband Islenskra Sparisjóda (Icelandic Savings Banks Association)

Italy Associazione di Fondazioni e di Casse di Risparmio Italiane (ACRI) (Association of Italian Foundations and Savings Banks);

Pri.banks-Associazione Banche Private Italiane

Luxembourg Banque et Caisse d’Epargne de l’Etat (BCEE)

Malta Bank of Valletta Plc

The Netherlands De Volksbank

Norway Sparebankforeningen i Norge

Portugal Caixa Geral de Depósitos; Montepio Geral

Romania Bancpost

Slovak Republic Slovenska Sporitelna AS

Spain Caixabank Confederación Española de Cajas de Ahorros (CECA) (Spanish Savings Banks Association)

Sweden Swedbank; Sparbankernas Riksförbund (Swedish National Savings Banks Organisation)

ESBG : 26 MEMBERS IN 21 COUNTRIES. Updated: 23 November 2018

European Savings and Retail Banking Group - aisbl / Rue Marie-Thérèse, 11 • B-1000 Bruxelles • Tel: + 32 2 211 11 11 • Fax: + 32 2 211 11 99E-mail: first name.surname@wsbi-esbg.org •Website: www.wsbi-esbg.org