The impact of EU price rules: Interchange fee regulation in retail payments. CEPS-ECRI Working Paper 4 February 2020

Debit and credit cards have gradually increased in importance as instruments for retail payments. This has prompted anti-trust authorities at both national and European levels to investigate and limit the interchange fee-based revenue model of four-party schemes. These moves were followed in 2015 by the introduction of the Interchange Fee Regulation (IFR), which introduced price rules to nurture a competitive, innovative and secure payments environment for all stakeholders. The IFR caps the interchange fees on consumer debit and credit cards and prohibits restrictions on co-badging and certain requirements to honour all cards for merchants. This paper assesses the impact of the IFR. Based on a literature review and data analysis, it concludes that the IFR has led to a drop in interchange fees – in some cases below the maximum defined in the legislation in all EU member states. The decrease in the interchange fee is largely reflected in lower charges for merchants, although the reduction is – at least partially – offset by higher scheme fees charged by international four-party card schemes and by higher fees for cardholders. The policy recommendations aim to increase transparency for a fuller understanding of the functioning of the market and to enhance competitiveness in both the market for card payments and other payment instruments

The EBA EU-wide Stress Test 2016: Deciphering the black box. CEPS Policy Brief No. 346, August 2016

The results of the European Banking Authority’s (EBA) stress test, administered to banks across the EU and published at the end of July 2016, revealed some large differences across banks. Our analysis of the results for the 51 banking groups suggests that not economic growth but rather the exposures to non-performing loans (NPLs) and to governments and corporates seem to be the main drivers behind the impact of the adverse scenario. This implies that the stress tests are primarily responding to the risks that have already materialised. They are therefore useful for understanding the implications of the currently identified risks, but they do not necessarily give insights into the fundamental soundness of the European banking sector. Policy Recommendation If well-executed, the stress test can be a useful tool for acquiring a better understanding of the implications of the current issues facing European banks. It does not, however, give insights into the fundamental soundness of the European banking sector, which is widely considered to be one of the main objectives of the stress test. To obtain such insights, a more intriguing exercise with a longer horizon (say, five or ten years instead of three) and multiple scenarios would be recommended

Was the ECB’s Comprehensive Assessment up to standard? CEPS Policy Brief No. 325, 10 November 2014

The Comprehensive Assessment conducted by the European Central Bank (ECB) represents a considerable step forward in enhancing transparency in euro-area banks’ balance sheets. The most notable progress since the previous European stress test has been the harmonisation of the definition of non-performing loans and other concepts as well as uncovering hidden losses, which resulted in a €34 billion aggregate capital-charge net of taxes. Despite this tightening, most banks were able to meet the 5.5% common equity tier 1 (CET1) threshold applied in the test, which suggests that the large majority of the euro-area banks have improved their financial position sufficiently that they should no longer be constrained in financing the economy. As shown in this CEPS Policy Brief by Willem Pieter de Groen, however, the detailed results provide a more nuanced picture: there remain a large number of the banks in the euro area that are still highly leveraged and in many cases unable to meet the regulatory capital requirements that will be introduced in the coming years under the adverse stress test scenario

Corporate Taxation in Europe: Let's get it together! CEPS Commentary, 16 February 2015

More comprehensive cooperation in corporate taxation at European level could significantly advance the region’s socio-economic prosperity, but its potential contribution is unfortunately overlooked in the current search for growth and job creation. Lucrative tax niches established in some member states and the fear of losing fiscal autonomy prevent several countries from accepting the move towards an EU single market for taxation. If ‘Lux leaks’ and other revelations of tax avoidance and evasion can succeed in changing the dominant attitudes in the European tax debate, this commentary outlines the steps that need to be taken to allow tax policy to play a positive role in promoting economic prosperity

The ECB’s QE: Time to break the doom loop between banks and their governments. CEPS Policy Brief No. 328, March 2015

The recent crises have shown that the eurozone countries’ government debt is not immune to default. Applying a large-exposure requirement also to eurozone government debt would be a logical measure towards breaking the bank-government doom loop, given the low probability and high loss-given government default. But what would be the impact of the application of the large-exposure requirement on the banking sector as well as on government funding? This CEPS Policy Brief presents the results of a simulation exercise performed for 109 systemic banks in the eurozone, showing that their eurozone government debt portfolios would have to decrease by 3.2% or €63 billion, if a 50% of own-funds cap would be applied on large exposures. The eurozone central banks’ demand for sovereign bonds under the extended asset purchase programme further creates momentum to start gradually implementing the restriction

Finance for sustainable growth. CEPS Policy Priorities for 2019-2024, 5 March 2019

The financial system, acting as intermediary between savers and borrowers, investors and entrepreneurs, sellers and consumers, plays a pivotal role in the functioning of the EU economy. The development of financial markets and institutions can therefore be a significant factor in inclusive and sustainable economic growth. However, this not only requires a partial shift in policies, but also in the way these rules are determined to take into consideration the increasing complexity and ever more rapid changes in financial sectors and society

The provision of critical functions at global, national or regional level. Is there a need for further legal/regulatory clarification if liquidation is the default option for failing banks? CEPS Special Report, 19 December 2017

The introduction of a bank resolution framework for EU banks has created the need for clear legal definitions of the main elements in resolution. This paper assesses one of these elements, namely “critical functions”, which encompasses the activities of a bank that are of significant importance for the real economy. The assessment of the regulation and implementation shows that there is room for sharpening the definition and equal application across all banks. It is questionable, however, whether regulatory intervention is necessary given the on-going work of authorities at different levels. In turn, legislative intervention will be required to align the objectives of the resolution framework and state aid. The latter currently leaves more room for public support measures, which are not necessarily in the public interest

Valuation reports in the context of banking resolution: What are the challenges? Banking Union Scrutiny. CEPS Special Report, July 2018

The preparation of accurate valuation reports is among the most challenging elements of the resolution mechanism. That challenge is underlined by the following observation: during the crises in the past decade, for almost half of the bailed-out banks the estimates for losses and capital needs were initially too low, resulting in several rounds of public capital injections. The single resolution mechanism has introduced a formal procedure with three valuations, respectively, to determine whether a bank is failing or likely to fail (valuation 1), to inform about the use of the resolution tools including bail-in (valuation 2), and to ensure that the ‘no creditor worse off’ condition is respected (valuation 3). This paper gives an initial assessment of the preparation of valuation reports in resolution. It finds that there are still substantial uncertainties regarding the outcome of these valuations due to organisational, legal and economic challenges. In order to reduce the uncertainties, several measures are suggested, such as improving the IT systems, increasing the use of historical data, shortening the procedure to assign the valuator, introducing a moratorium, and harmonising the insolvency laws for banks in a way that integrates the insolvency and resolution regimes

A closer look at Banca Monte dei Paschi: Living on the edge. CEPS Policy Brief No. 345, July 2016

The Italian bank Monte dei Paschi di Siena (MPS) is expected to fail the 2016 EU-wide stress test conducted by the European Banking Authority (EBA), whose results are due to be presented Friday, 29 July 2016. When taking a closer look at the bank, it becomes apparent that the bank has so far failed or nearly failed all the EU-wide supervisory exercises that have been undertaken in the past six years. Almost every time the bank has managed to raise just enough capital, including public funds already contributed twice by the Italian government, to close the capital shortfalls or meet the threshold. This allowed the bank to live on the edge, which is costly to society. Supervisory, resolution and competition authorities should therefore discourage banks from following in MPS’ path of doing the minimum required, by imposing extensive recapitalisation requirements with a proper resolution

Banking Business Models Monitor 2014: Europe. CEPS Paperbacks, 14 October 2014

CEPS and the International Observatory on Financial Services Cooperatives (IOFSC) at HEC Montreal have initiated an annual monitoring exercise on banking business models in the EU. Based on their balance sheet structures, 147 European banks that account for more than 80% of the industry assets were categorised in four business models. The Monitor emphasises the ownership structures and assesses the financial and economic performance, resilience and robustness, before, during and after the financial and economic crises across retail diversified-, retail focused-, investment-, and wholesale oriented banks. Inter alia, this edition of the Monitor finds that banks that engage more in traditional retail banking activities with a mix of funding sources fared well as compared to other bank models during the different phases of the crisis