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José Manuel Campa has been Chair of the European Banking Authority (EBA) since March 2019. He talks to us about the role of the EBA, how prepared banks are to weather future crises, and how digitalisation is impacting the EU's banking sector.
What does the EBA do to make the EU banking sector work for all of us who depend on it?
First, we contribute to the single set of rules that lay down how banks work and operate within the European Union and ensure consistent supervision of the banks. The rules are written with two main goals in mind. One is to foster the single market, with a level playing field and the possibility of providing services across the EU. The second goal is what we call prudential rules
, which aim to make sure the rules are written in a way that ensures banks operate in a prudent manner – in other words that they provide proper services to customers, while operating those services in a way that both ensures financial stability and satisfies the needs of the customers in areas such as prevention of fraud, prevention of crime and financing of terrorism and anti-money laundering
. There is also the issue of safety and security in payments – as we see innovations in the payment system, we regulate to make sure those payments are being carried out in a safe way, as well as in new ways.
Then beyond citizens, there's obviously a lot that's done for corporates as well. Here, the key areas are lending, providing other monetary and cash-related activities, while at the same time providing services that are more related to hedging, or covering, the risks of financial products.
Amid recent uncertainty in the US and Switzerland, how able are EU banks to weather potential future crises?
First, I would say that currently the banking sector is in good shape – in terms of capital levels, liquidity levels, in terms of asset quality, and governance. Every two years, we do a stress test of the banks in which we put forward an unlikely but possible negative scenario, and we test how the banks would perform. We published the last one in July 2023, and we will do the next one in the first half of next year. The outcome of the July 2023 stress test was positive – we saw that despite the very adverse scenario, banks would be able to continue to provide adequate credit to the economy.
Secondly, indeed there has recently been banking turmoil in some developed countries – in the US and Switzerland. European banks were isolated from those events and there was not really any significant turbulence in the European banking sector. What are the lessons learned following these episodes? First, that there were obviously weaknesses in the governance of the banks that were affected. Second, there were weaknesses and delays in supervision by the authorities. This is one area that we have enhanced a lot in the EU over the last 10 years for the banking union
– so the creation of the single supervisory mechanism
, with the European Central Bank (ECB) at the core of that mechanism.
The third thing we learned was that rules were not applied in the same way across all banks. So, in some places, particularly in the US, weaker regulations were being applied. And in the EU, we apply the same rules to all institutions.
As we go forward, we need to continue to be vigilant because there are certain risks that concern us. Broadly speaking, geopolitical tensions are a major source of risk that we can find in a number of different areas. Cyberattacks, for instance, as well as the possible fragmentation of world economic activity and how that affects the evolution of integrated financial markets. Then of course you have the war and how that may affect different sectors of the economy – for example, areas that are exporting to geopolitically sensitive areas. As we go forward, this needs to be monitored. And this is one area where the stress tests can really help us.
How will digitalisation impact the EU's banking sector?...
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