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FSC 2019 – Preface Report

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In his preface to the FSC report Martin Aehling looked back at the preparations and the agenda setting giving some thoughts and reflections on the chosen topics. He also illustrates and briefly assesses some of the developments and settings which were the background of the thematic agenda in 2019, and gives a notion of the motivation and ambitions behind organising the financial stability conferences and related scientific activities.

Financial Stability Conference 2019
28 October 2019
Conference Report

Preface

Martin Aehling, Director, Financial Risk and Stability Network

The Financial Stability Conference 2019 was a good success as regards its aim and motivation. An excellent line-up of speakers and panelists represented an inspiring mix of different views and perspectives, while a large audience of about 200 participants actively and controversially debated the agenda topics.

When outlining first thoughts to this conference beginning 2019, we were still moved by the discussions of our 2018 conference. The issue of risk reduction and risk sharing was passionately debated, leaving substantial disagreements on how to make progress given the divergent positions of policy makers. We also looked at essential worksites for the European Union in the light of changing political conditions. This is why setting the topic of national banking policies and financial integration seemed reasonable to us in addition. And as bank resolution is at risk that believe in it fades away, we put the topic of how to make resolution work as a third indispensable subject on the draft agenda. With this ideas, we developed and finalised a convincing and consistent program. This was reflected at the conference itself, by the enriching debates, and by the appreciation from many participants. Indeed, the discussions gave important and informed insights on the subject matters and revealed different views and positions, especially from policy makers, on controversial and pending issues in the EU, on significant financial integration aspects as well as on the functioning of the bank resolution framework. Furthermore, the event presented a perfect venue to bridge academic and policy making expertise, including as well various stakeholders, institutions and civil society.

In doing so, our intention is to foster policy dialogue with a focus on contributing to advance financial reforms and solve problems in the EU. Against first worries, we succeeded in ensuring a sufficient funding for the conference, the relating research workshop as well as some other activities in 2019. As a unique and credible organiser with a serious commitment and an independent stance we received al lot of encouragement and positive feedback, and I want to express my thanks to all those who engaged. As a very lean non-profit organisation we succeeded to attract oustanding speakers, to develop thoughtful and topical agendas, to enter in cooperations with institutions, and to build up reach and attraction in the European Union throughout the political, institutional and academic landscape.

Let‘s have a look at our 2019‘s conference: the outcome of our considerations and reflections resulted in the title „EU between regress and progress: how to cope with national banking policies, single market deficiencies and the unsolved sharing Issue. As a subtitle we put „– political dynamics and their repercussions on regulatory and institutional settings“ to illustrate the backdrop and direction of the agenda topics. When drawing up first ideas of the program, we thought that resuming some of the relevant debates in 2018 and driving them forward is reasonable and senseful – as some of the issues that have been touched upon remained contentious, unfinished work. And we completed these with none the less essential, additional topics on financial markets policies in the EU.

At this point, let me make some general remarks on the political settings, which were as well a backdrop to the agenda setting. As our 2018‘s conference has shown, some of these issues are highly political. The policy conditions and developments shape and affect the strains and tensions between regress and progress in the EU. And policy making at European levels usually carries grits in its gear. Interferences and blockades by member states are quite normal. But what we experience since some time is more than that. There is a new quality, not to the good, but to the worse: the vigorous propagation of nationalism and the increase of populism in member states – mixed with gains by populist and extreme right-wing parties in various elections. Obstruction of reform projects and the brutalisation of political debates are the actions of the latter groups.

This all means headwinds for progress in the EU and heigthen the obstacles to essential worksites on financial integration. Fragmentation of the single market is one worksite, but there are more: inter alia regulatory ring-fencing and the protection of national banking systems by their governments. These ties are very strong, a fact that has been demonstrated once again in spring 2019 when the German Finance Minister pushed Deutsche Bank and Commerzbank for a merger to create a national champion. Such national interests and interferences also concern the too-big-to-fail issue and the prospects for the application of the resolution framework, for which we experience many impediments in practice. This refers as well to a more fundamental political conflict situation in the EU to which Martin Hellwig alluded in his opening speech. He said that in local and national policy discourses there is hardly anyone who defends the need for the rules of the Banking Union and the interference that they mandate.

In addition, there is a risk, post-Brexit, of intensified competition for financial services between the UK and the EU, resulting in a loosening of regulatory standards in the UK; as it is happening in the United States under the Trump-Administration – Dennis Kelleher clearly pointed this out at our conference in 2018.

All this adds to possibly destabilizing effects under worsening economic conditions, due to open trade conflicts. Legacy issues and problems with non-performing loans in some national banking sectors could pop up quickly if the situation deteriorates. And the room for manoeuvre for monetary and fiscal policies to counteract is limited. Moreover, ECB policies as well as the question on risk distribution in the EU remain points of serious contention between member states, and prospects to advance look poor – though the German Finance Minister recently suggested a compromise proposal on the debated European Deposit Insurance Scheme as the missing part of the Banking Union.

These settings are in particular worrying as we see a widespread mistrust and a lack of confidence, ruling policy making in Europe. They are adding to the fragility of the current state in the European Union, causing a political stalemate at different levels: only look at the time consumed by Brexit negotiations and the related political games as an example. There is a crisis of confidence in policy making, in times where there are major risks and challenges lying ahead. Climate change is a massive issue, with strong repercussions also on financial stability and the financial sector.

Looking at these developments, people ask their representatives to deliver, while populist and right wing parties use it for their disastrous political purposes. I am convinced that the European Union, the Single Market and the Monetary Union are common public goods. They should not be reduced to the economy and big firms only. It has to be a project of solidity and solidarity as well, and not largely a means to fulfill the interests of big business and powerful stakeholder groups. This has to be remembered sometimes when looking at the unrest in societies. I strongly believe that the EU is the future. I cannot see how we can address global problems at national levels in a progressive and positive way. This relates inter alia to the financial system, its centrality to the economies and societes, its global interconnectedness and its interdependencies with national states and policy making.

In my view, there is no reason for relaxation and complacency. We have to get to common understandings and advance reforms. And this is where some motivation of the conference and the organiser lies. What worries me, and what cannot be set aside by optimism shown, is that national one-dimensionalities contain immense potential for conflict for and within the EU. In my view, much more courage, tranparency and responsability are urgently needed at policy making levels. They are the very necessary ingredients for forward-looking policy making, especially in a monetary union, and even more in addressing existing and future challenges.

As to the organiser and his motivation, the idea is to present a critical and independent platform for serious debate on financial reforms and financial stability issues. I am convinced that we do need an open, public discussion format on essential issues of financial markets policies at an ongoing basis, integrating all stakeholders and civil society as a often neglected voice. We shall not leave the debate only to the industry and to closed shops of expert circles in authorities and central banks. In this respect, the conference is indeed unique. Looking back, this is well appreciated. We did set comprehensive agendas and filled controversial discussions.

The event appears to be considerably interesting and attractive also from a scientific perspective – our relating research workshops which were discussing and deepening aspects of the conference topics, financial stability issues and bank resolution clearly confirmed this. A range of policy suggestions and points of reference for policy-oriented, at the same time scientifically based analysis were identified. Also this year we brought together researchers from all over Europe to draft policy papers and present them at the workshop. The feedback was overwhelming positive. Most of the results can be found on our website.

At this point, let me thank those who made the events possible. First, I am very grateful to the endowment „Stiftung Geld und Währung“ for their most valuable support since the beginning – regrettably in 2019 for the last time. And I want to thank Linklaters and Moody‘s for their generous support as premium sponsors. Furthermore, I much appreciated the cost contributions by Amsterdam Center for Law and Economics as well as Florence School of Banking and Finance. And I am greatful to ESMT Berlin for having been the host of the conference in the fifth year. Last but not least let me thank all partners and the members of the organising committee to support our ambition, and for their valuable input when preparing the conference.

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